CHICAGO — Proposals that could result in trading reforms at the Chicago Board of Trade, the world's largest commodities futures market, were unveiled Tuesday by the board's chairman in the wake of a federal grand jury investigation of alleged fraud at the exchange.
At the same time, the Board of Trade hired a former U.S. attorney with experience in prosecuting organized crime figures to help advise the exchange's 3,600 traders and brokers on the legal limits of the Racketeer Influenced and Corrupt Organizations Act, known as RICO, which federal agents are threatening to use against targets of their investigation.
The twin actions appear to be designed to preempt any moves by federal regulators as a result of the investigation and to help exchange members, and perhaps the exchange itself, attack the government's use of RICO. The law allows the government to seize personal property purchased from the profits of criminal enterprises.
FBI agents worked undercover for 18 months as traders at the Board of Trade and the Chicago Mercantile Exchange, the world's second-largest commodities market, collecting evidence of allegedly fraudulent practices that cost customers of the exchanges tens of millions of dollars. Government penetration of the complex and closed world of commodities trading stunned members of the two exchanges.
Karsten Mahlmann, Board of Trade chairman, stood in the soybean trading pit--one of the focuses of the FBI investigation--Tuesday to announce the proposed reforms and the hiring of the former U.S. attorney in Chicago, Dan K. Webb. Mahlmann was surrounded by an estimated 1,900 traders and brokers who flocked onto the deserted grain trading floor after hours for the 45-minute meeting that ended almost two weeks of silence by the 140-year-old exchange.
In a three-paragraph announcement, the board said it had hired Webb to prepare a legal memorandum on RICO and to hold a question-and-answer seminar on the law for board members "to clarify misunderstandings surrounding this statute."
In a separate two-paragraph announcement, the board said only that "a series of proposals (are) being examined that may be part of a package of recommendations to be sent the board of directors (of the exchange) on Feb. 7."
Spokesmen for the board refused to amplify either announcement.
However, a trader who attended Tuesday's meeting said: "They are trying to put in a lot of reform regulations ahead of what (government) regulators might do. It is considered a good political move."
Among reforms being discussed are measures to strengthen prohibitions against trading after the official closing bell and dual trading, a practice that allowed brokers to trade for their own accounts and for customer accounts simultaneously.
The exchanges, which are regulated by the Commodities Futures Trading Commission, have been largely self-policing markets, relatively free of government scrutiny until the FBI investigation.