Brokers, Bagmen, & Moles TRANSCRIPTS

[00:00:00] Anjay Nagpal: Previously on Brokers, Bagmen, and Moles.

[00:00:06] Dietrich Volk: You look up from the center of the floor and it was virtually an impossible task.

[00:00:11] Dietrich Volk: There were all sorts of kind of unsavory people. Maury Kravitz, Leo Melamed.

[00:00:17] Dietrich Volk: Maybe they're there doing something beyond just trading and taking advantage of the abuses.

[00:00:23] Dietrich Volk: Two of them were segregated, Ray Pace and Sam Cali. They were the ABS Brokers.

[00:00:35] Danielle Elliot: Hey, how are you?

[00:00:37] Anjay Nagpal: Good. Good. Long time to talk.

[00:00:39] Danielle Elliot: Good. Yeah, I know it. Ha. It really has been. The document's incredible, by the way. But how are, anyway, how are you? How are you doing?

[00:00:46] Anjay Nagpal: Um, yeah, no, I'm...

This is a phone call I had with our producer, Danielle, and the incredible document she's referring to is something I stumbled upon as we were getting ready to wrap up this podcast.

That was fucking crazy, right? I wasn't sure. It was nuts too. Cause I was like, literally.

[00:01:03] Danielle Elliot: Yeah. How did we not?

[00:01:04] Anjay Nagpal: It was just in, in all those fucking documents and like I never, I never read all of them. Like I didn't read all of them and it was literally like the last, one of the last things I didn't read and I was just sitting there like, holy shit.

Like this is, you know, it's like the...

[00:01:18] Danielle Elliot: All of it.

[00:01:20] Anjay Nagpal: The document in question is a memorandum filed by former assistant US attorney Tom Durkin. We'll call this the Durkin document. Durkin is a former assistant US attorney turned defense lawyer, and in this case he was defending a broker named Sam Cali.

You'll remember Cali from the end of our last episode. He's one of two brokers who was severed from the main Japanese Yen trial along with Ray Pace.

[00:01:51] Anjay Nagpal: Like it's the fucking case that Durkin made against the Merck.

[00:01:54] Danielle Elliot: Yeah.

[00:01:54] Anjay Nagpal: But it's just nuts to me, like the detail of, right, how they were gonna expose Leo and, and like multiple other exchange officials that were like, I, you know, the one guy was like, yeah, you can steal a little bit, but not too much. Steal one tick on each order, not four.

[00:02:12] Danielle Elliot: Yeah. That, that quote was, we'd have to read that in the episode. Like those moments.

[00:02:16] Anjay Nagpal: Totally.

[00:02:16] Danielle Elliot: Yeah.

[00:02:17] Anjay Nagpal: We have to at least try to talk to Tom Durkin. Right. Yeah, I mean that's he's, he's a lawyer. Like why? We have to be like, yo, what happened?

I'm Anjay Nagpal and this is the season finale of Brokers, Bagmen, and Moles.

[00:02:44] Thomas Durkin: It was a result of my opening statement that they all started screaming bloody murder and.

[00:02:49] Thomas Durkin: So the guy with the biggest pile of money has the most control and indeed, uh, took advantage of it.

[00:02:56] Thomas Durkin: Gimme a break. Sam Cali's doing this with the president of the exchange and he's supposed to think he's committing a federal crime.

[00:03:02] Thomas Durkin: Are you crazy?

[00:03:04] Thomas Durkin: They didn't risk putting guys in the pit for this kind of nickel dime shit.

[00:03:19] Anjay Nagpal: Let's go back to 2020. The world was shutting down, but I decided to start this podcast, and prominent Chicago attorney, Tom Durkin is one of the first people I contacted. I emailed and called and never heard back. Over the next two years, I became convinced that the government went after a bunch of unlucky traders who did business as business was done. I thought it was unfair that nobody pointed a finger at the exchanges or the people that ran them.

And then with the discovery of Tom Durkin's custom and practice document among 100,000 pages of trial transcripts and government filings, I realized that somebody did. So I emailed Durkin again, and this time I included a copy of his memo. He responded almost immediately and agreed to an interview.

His office was in the famous Rookery Building on La Salle Street, the same La Salle Street as the storied Chicago Board of Trade. We interviewed Durkin in the historic Burnham Library, which used to overlook the site of the infamous 1893 World's Fair. In fact, Daniel Burnham sat in this very room and looked out over the landscape as he was planning the event, but we were here to talk about a another infamous event in Chicago history.

[00:04:56] Thomas Durkin: I'm Tom Durkin, I'm a a Chicago lawyer I've been a lawyer for here for 48 years, practice primarily federal criminal defense. I was an assistant US attorney for six years, from 19, uh, 78 to 1984.

[00:05:14] Anjay Nagpal: An assistant US attorney until 1984, meaning he left that post just before the FBI arrived in the trading pits of Chicago.

[00:05:27] Thomas Durkin: I've been involved in a fair amount of high profile cases. I've done a fair amount of, uh, white collar defense. This was a big one, I mean, you cannot understand how big a deal this was at the time it happened. Everyone thought that the whole Merck was gonna come crumbling down, and they thought at the time that these cases that got brought were only the tip of the iceberg, and they were going to be some very big cases to follow.

And virtually every lawyer in town worth their salt was involved in these cases as a result.

[00:06:04] Anjay Nagpal: Durkin included. He agreed to defend a yen broker named Sam Cali.

[00:06:11] Thomas Durkin: The case came in, but I remember at, at first realizing that it was gonna take an enormous amount of, uh, work just to understand what the charges, what they were talking about.

Uh, so as a result, having had some experience of being on the floor, I asked if I could get a, um, a coat and a badge and could just go the floor and, and listen. I think it might have been Jack Sandner who arranged that for me.

[00:06:45] Anjay Nagpal: As a reminder, Jack Sandner was the number two at the Merck for many years before becoming a chairman for a very long run in the eighties and nineties.

[00:06:56] Thomas Durkin: I got to know Jack very well through this case and another very well known trader named Jimmy Kaulentis.

[00:07:05] Anjay Nagpal: Jimmy Kaulentis was a co-founder of ABS Partners Brokerage and on the floor he was known for his tough guy reputation.

[00:07:14] Thomas Durkin: Sam Cali worked for Jimmy Kaulentis. Um, Jimmy was a big help. Jimmy's quite a guy. Um, he's an amazing guy. He was able to educate me quite a bit, but what I learned the most from was, was literally going to the floor every morning.

[00:07:36] Anjay Nagpal: Durkin spent a lot of time on the floor over the course of a couple of months, and with Jack and Jimmy showing him the ropes, he began to see what all the traders were saying.

[00:07:49] Thomas Durkin: The quickest things I learned is that this curb trading was, it wasn't nefarious. It was to really help each other out and to help clear the clear people's decks so that they didn't get hung out to dry, which I thought there's always a customer underneath every one of these orders, and if somebody could get stuck on it, the customer got stuck.

So, I began to doubt the description outlined in the indictment of how the game was supposed to be played seemed very different to me than from the way it did play and the way it had to play. And it also seemed to me that there was a lot of what they called standard operating procedure on the floor, that that's what you learn.

[00:08:37] Anjay Nagpal: Yeah, no, I, I, I agree. And I think it's like one of the lawyers actually had a great way to describe it he said people made minor unintended violations on one side of a big gray area, and some people made egregious theft with malintent on the other. The gray area is policed by the exchange. Customers can complain.

No customers complained. The exchange let this big gray area exist despite technology existing to make the area smaller.

[00:09:01] Thomas Durkin: That's accurate.

[00:09:02] Anjay Nagpal: Yeah.

[00:09:02] Thomas Durkin: To turn these into federal crimes, you, you have to prove. It's what they call specific intent that you had the intent to defraud. And I'm not saying there was never fraud, don't misunderstand me of course there was. But a lot of what they were calling fraud, I didn't see as fraud. And it offended me that some of the big shots at the exchange should have been included in that and they weren't. And Sam Cali was a working man. Sam's a wonderful guy by the way.

[00:09:36] Anjay Nagpal: Sam, Ray Pace, T-Bun, they're all working guys.

[00:09:41] Thomas Durkin: Blue collar, working class guy, and he wasn't making a ton of money, made good money, but he was just a broker. He wasn't a local. The locals were the ones that made the most money from what I recall. Um, they also took the bigger risk, but you know, Sam was just there filling orders for the Kaulentis company. I can't remember the name of it, but, um,

[00:10:05] Anjay Nagpal: It was, uh, ABS, ABS Partners.

[00:10:07] Thomas Durkin: Yeah, that's right. Yeah. You know, that was a very legitimate company.

[00:10:13] Anjay Nagpal: ABS Partners may have been a legitimate business, but the big brokerage firm was led by partners with sketchy past like Jimmy Kaulentis and Maury Kravitz. The more time Durkin spent on the floor, the clearer he saw the case. So when the government announced the indictments and Sam and Ray were both being charged with RICO violations...

[00:10:39] Thomas Durkin: I thought Rico was ridiculous. I, I understand why the government uses it, because it's, it's a heavy handed and it can produce cooperation, you know, to call the, the Mercantile Exchange a a racketeering enterprise I thought was a bit over the top. I mean, that's just as ridiculous.

[00:11:02] Anjay Nagpal: What was your defense and how was it different than the defense of the other traders?

[00:11:09] Thomas Durkin: Well, my defense and I didn't win a lot of friends on this is, was that many of the things the government said happened, happened. And most people were defending on the basis that the government wasn't gonna be able to prove that any of this happened, and I didn't think that was very realistic. It looked to me like they were gonna be able to prove it.

[00:11:33] Anjay Nagpal: Durkin applied a legal term to the rule breaking that was so prevalent on the floor.

[00:11:39] Thomas Durkin: It seemed to me that a better defense was that. This, nobody was intending to defraud on this, and it was custom in practice and that became very controversial and a lot of the lawyers took issue with that because they wanted me to go along with the regular defense that this just didn't occur, and they were gonna be able to prove that. I didn't think that was right.

[00:12:03] Anjay Nagpal: When Tom Durkin thinks something isn't right, he lets it be known.

[00:12:10] Thomas Durkin: I didn't wanna have to go to trial with people who were claiming this didn't happen. I was giving them notice that we were going to claim that a lot of these things did happen, but it wasn't a crime.

[00:12:23] Anjay Nagpal: I thought that line of defense was pretty bold and maybe even risky.

It took about two years for the government to start Sam and Ray's trial. So Durkin had plenty of time to craft his argument.

[00:12:39] Anjay Nagpal: You subpoenaed, uh, the Merc and Deslcher and all and and those places, like, can you talk about that process? Do you remember what you were going after, what you were trying to find?

[00:12:48] Thomas Durkin: We were just looking for instances that where Merck rule violations were, were done repeatedly, and that was an intent to defraud. It it certainly became very clear to me that if Sam Cali was a crook, so is Leo Melamed, and I didn't think Leo Melamed was a crook. It just didn't seem right to me that there were some things that just went on, clearly went on that nobody thought was a crime.

[00:13:22] Anjay Nagpal: The idea that rule breaking was custom in practice was the core of Durkin's defense. And he explains it all so well in this petition. Since he hadn't seen this defense in a long, long time I pulled out a copy of what we've been calling the Durkin document.

[00:13:43] Anjay Nagpal: Would you do me a huge favor and then just read this, maybe this paragraph, um, here and then tell us about it.

[00:13:50] Thomas Durkin: I was talking about a guy by the name of March who would testify, I believe we had a FBI report. To this effect and it reads what we said was, Mr. March will also testify to his relationship with fellow trader David Horberg, a yen broker who filled orders at certain times for Delscher Investments company, Delscher is a clearing member slash brokerage firm in which Leo J Melamed is a controlling principle. Mr. Melamed is a living legend at the CMA and usually universally acclaimed as being the visionary most responsible for the creation and success of the financial, financial instrument futures contracts and the resulting spectacular growth of the CME. March will testify to being required to change a price on a trade with Horberg because Horberg advised him this is for Leo.

[00:14:43] Thomas Durkin: March will testify that Horberg repaid him, March, for this price change on the Melamed order by delivering points on subsequent orders. And uh, you know, that was, those things happened.

[00:15:01] Anjay Nagpal: The Durkin document laid out that those things happened a lot.

This is such an amazingly put together document and when I, I first discovered, honestly, my jaw was on the floor because you laid out, you know, okay. There's Eric March who's gonna testify, um, that in his 22 interviews, with the FBI, he names 108 other traders. In addition to the already indicted defendants that have engaged in similar practices. Number two, Thomas Branoff is gonna testify that in his 26 interviews with the FBI 55 other traders in addition to the 19 that were indicted as having engaged in trading practices similar to those charged in the indictment. It goes on and on. It just paints the picture. As you say that everyone is doing it and you have specific instances of other members of the board of governors, you know, engaging these same practices.

[00:16:01] Thomas Durkin: It, it goes in part to our, my theory that what was really wrong with the government's theory of its case is that it didn't include any of the higher ups, and it had to include the higher ups if what they were saying was true. And why should Sam Cali suffer if Leo Melamed's not suffering

[00:16:22] Anjay Nagpal: To support his theory, Durkin gathered a mountain of evidence against the higher ups. Have a listen.

[00:16:32] Anjay Nagpal: March will testify to a conversation during the hearing with a member of the Board of Governors and then chairman of the Floor Practices Committee, William C. Muno, March claims Muno told him that. Quote, it was alright to give away one point per contract on the close. However, four points per contract was too blatant. March would go on to testify. Will also testify a variety of transactions in which he engaged with members of the hierarchy of the CME. For example, Sleds will describe a 200 contract transaction between co-defendant Baker and a fellow yen trader Ira Harris, a member of the board of Governors of the CME. Sleds will testify after the closed in bell in the pit when defendant Cali would recite trades to fellow trader Steven E. Wallick, vice Chairman of the CME Board of Governors and Chairman of the Floor Practices Committee. Sleds will testify that the orders he saw did not want the business because if he Baker did not get a fill that was satisfactory to Melamed, Melamed would come back and demand a fill at a particular price.

Volk will testify that he understood Baker to be stating even if a broker gave Melamed a fill, that Melamed knew was an honest fill, but it was not to his satisfaction, Melamed would simply not accept the order. He will also corroborate that Sleds, March, and Baker evidence concerning Mr. Melamed's trading practices.

Cali will testify that the observation of and open participation in such practices with members of the exchange hierarchy also led him to believe he was conforming his conduct to the requirements of the law.

[00:18:22] Anjay Nagpal: This echoes exactly what traders have told us in previous episodes. Here's Ray Pace.

[00:18:29] Ray Pace: That didn't sit right with me. Yeah. Like Leo would point the finger at like, these are the bad apples, you know? Because one of 'em guys if they were in the pit were conducting business the exact same way. If they said that said they weren't they're lying. You know.

[00:18:43] Anjay Nagpal: T-Bun said the same thing.

[00:18:46] T-Bun: I had nothing to tell him that didn't, that wasn't going on at the beginning of time down there.

[00:18:53] Anjay Nagpal: And even Dietrich Volk, the FBI agent in the Japanese yen pit said the same thing.

[00:19:00] Dietrich Volk: I think there was about forty guys in the yen pit at the open every morning. We indicted 21 of them. And if I would've stood on the other side of the pit, we would've indicted those the people over there. And if I would've gone to the cattle futures or you know, any, anywhere, you know, given enough time to acclimate would've been in the same position.

[00:19:25] Anjay Nagpal: They're all agreeing. Everyone did this on the floor.

But there's one point that Tom Durkin wanted to make very clear.

[00:19:35] Thomas Durkin: I wasn't trying to lay out Leo Melamed as a crook, you know, he was no more of a crook, in my opinion, than Sam Cali. I, I don't think these were crimes that they were committing, whether they were or were not. Crimes are way above my pay grade.

But what I do know is that Leo Melamed and the rest of the Board of Governors should have been treated the exact same way as Ray Pace, T-Bun, and the other traders that were indicted. Either they were all guilty of committing crimes or none of them were.

I think that pleading pretty much sets forth the whole controversy. Um, it's actually pretty good. I hadn't remembered that. Um.

[00:20:25] Anjay Nagpal: Yeah, no, it's, it's, it is excellent. I mean, so, you know…

[00:20:28] Thomas Durkin: But you'll notice, you'll notice that my wife signed her initials to my signature, which probably means she did most of it, so, um, I have to give her credit.

[00:20:38] Anjay Nagpal: Absolutely. It's amazing work.

[00:20:39] Thomas Durkin: It's pretty good pleading.

[00:20:42] Anjay Nagpal: Durkin's wife is a fellow lawyer. They run their practice together to this very day.

If you're following along still, you're probably asking yourself if this perfect defense existed, what happened?

Before we continue, I want you to listen to an interesting story from FBI agent Dietrich Volk about visiting Sam Cali way back in January of 1989 when the investigation was first leaked by the Chicago Tribune.

[00:21:29] Dietrich Volk: I got him to come up to an apartment. And, uh, and he, he gave us a statement and then, uh, he later decided he didn't wanna cooperate and being, uh, that he was a broker for ABS you know, I, I guess I can kind of understand that some of the rumors I'd heard. Um,

[00:21:50] Anjay Nagpal: Can you expand on that? What were the rumors that you heard and, uh, how would that influence what Sam would do?

[00:21:56] Dietrich Volk: Well, well, ABS was a brokerage group that there were some notorious characters. They're in books, Maury Kravitz, Leo Melamed, uh, you know, the Borsellinos.

Uh, there was rumors of organized crime involvement in ABS and uh, I think Sam was aware of those rumors.

[00:22:19] Anjay Nagpal: And why do you think Sam Cali chose to go to prison instead of to instead of, uh, cooperating?

[00:22:23] Dietrich Volk: I don't know exactly, uh, why Sam Cali would make that decision. Uh, uh, you know, all those men, uh, had families, to support, uh, after this was all over.

And then, uh, there were the nuances of the organized crime influence that might possibly exist there, which I doubt were lost on any of them. We just didn't, we wield as big a club as the exchange did in terms of their efforts to discourage cooperation.

[00:22:55] Anjay Nagpal: David Greising and Laurie Morse, authors of Brokers, Bagmen, and Moles, reported that Dean Kaulentis brother of ABS head Jimmy Kaulentis called Sam Cali, and told him not to cooperate with the government.

[00:23:12] Anjay Nagpal: So in this case, it was ABS, not the exchange, that wielded the big club and Sam would go to trial.

But before the main yen trial got underway, Tom Durkin notified the judge of his bold defense strategy. And requested that his client be severed from the main trial because his defense clashes so radically with that of the other defendants.

[00:23:46] Thomas Durkin: You know, it, it caused a big problem at the trial cuz Judge Hart didn't grant the severance.

He did sever us after my opening statement, which created quite a controversy. I felt bad because I, I guess people didn't think I really would do it.

[00:24:05] Anjay Nagpal: He felt bad because after not getting severed before the opening arguments, Durkin showed up to the main trial and started using a defense strategy that basically calls 19 of the other defendants in the room guilty.

[00:24:22] Thomas Durkin: It was a result of my opening statement that they all started screaming bloody murder, and I just looked at Judge Hart and said, you know, what do you want me to do? I told you this is gonna happen. You know, Judge Hart was hitting himself in the head, you know, like, oh my God. So we got severed.

[00:24:40] Anjay Nagpal: As we know from episode nine, the traders in that main yen pit went free. There was not a single guilty verdict on over 240 charges after that Durkin's request to sever from the main trial became even riskier.

[00:24:59] Thomas Durkin: It didn't make me very popular because, you know, Melamed and, and the higher ups were, were never included and they didn't wanna be included in this but I, I, I thought it was unfair that a few guys were gonna get sacrificed for the sake of, you know, what is it just somebody's gonna take the fall for this?

[00:25:24] Anjay Nagpal: Durkin had seen and heard too much to back down.

[00:25:29] Thomas Durkin: I know there was one particular instance where one of the agents reported seeing Leo Melamed and Sam Cali do this trade on the curb.

[00:25:39] Thomas Durkin: My argument was, well, what? Gimme a break. Sam Cali's doing this with the president of the exchange and he's supposed to think he's committing a federal crime. Are you crazy? What? I mean? How does that work?

[00:25:50] Anjay Nagpal: With that kind of evidence to back up his defense, it's easy to understand why Durkin thought he was doing the right thing.

The defense attorneys in the main trial and Melamed's attorney, they were not happy with Durkin, but he did have an unlikely ally in Dietrich Volk.

[00:26:11] Dietrich Volk: When he argued and, and stated in opening arguments that his client who was a ABS broker was forced to change a price on a, an order he had executed for Leo Melamed's account, which Leo Melamed would've known that changing that price meant getting a local bagmen to, to agree to take the loss, knowing that that broker in turn would steal money from other customers to repay that bagmen.

And, uh, I think Leo Melamed knew the full scope of those activities when he demanded the price change.

[00:26:48] Anjay Nagpal: As the severed trial approached tensions rose. On one hand, Ray and Sam's attorneys had gathered an incredible amount of evidence to support the claim that their clients were part of a culture at the Merck were violating trading regulations was standard operating procedure and, that trading violations were not federal crimes because they did not intend to defraud. On the other hand, Ray and Sam faced very serious charges that could put them away for a long time. To make matters worse, the government was not happy that they came up empty in the main Yen trial, so they weren't about to let Sam Cali and Ray Pace off the hook. Something had to give.

[00:27:43] Thomas Durkin: The government came to us and made an offer that we really couldn't refuse in terms of risk. Um, I, I know Sam went to prison, which happens all the time when, when, when the government put something on the table that is, is so much better than what you could get if you lost, um, cuz you went down in RICO it, it was a big deal.

Sam was not a wealthy man. I mean, he didn't have an enormous amount of money to throw at this. These are tough calls to make. It's a very hard decision for somebody, from what I've always understood he, he was happy to have it behind him.

[00:28:26] Anjay Nagpal: Sam Cali's fellow defendant, Ray Pace, had the same decision to make, take the deal or fight the government in court.

[00:28:36] Ray Pace: And this is why, I don't know. Look, you could look at the stats. I think the government's got a 95% conviction rate or something like that. Once you're indicted, you, that's one of the reasons guys are exhausted, they, they don't have the money anymore to fight it. You can't do it. They also threatened to take those guys back to trial, even though they had already, you know, Um, went to trial for five months. They said, we're gonna retry 'em.

[00:28:58] Anjay Nagpal: So, because some of the 19 traders that went free after the main yen trial were let off due to a hung jury, the government could retry them, and that's what they were threatening to do when Ray had to make his decision.

[00:29:15] Ray Pace: No, I wasn't afraid to go to trial, but I didn't have the I, I couldn't pay my attorney. I didn't have anything. There's nothing for me to give him. I didn't wanna sell my house, you know, which I would've had to do to go back to trial to pay my attorney. So you go ahead and you take the plea agreement and that's what I did.

Well, the one count I pled guilty was $87 and 50 cents. Okay. I don't know. It was a seven lot. I dunno, it was 1250 a tick. You could figure it out. I don't know what it was. And there was another one out the two. Whatever, 180 counts or whatever you could pick and, and plead to. Your, your guidelines are the same thing, which is how much time you're gonna do, depending on the dollar amount in your case.

And mine was eight to 14 months maybe, or something like that. And I did nine when I had to go away, and it cost me nine months outta my life and nine months in Minnesota, and then three months here and a halfway house in Chicago.

[00:30:07] Anjay Nagpal: Shortly after starting his sentence, Ray found out that his wife was pregnant with their first child. He tried to get his sentence reduced to make it home before his wife gave birth.

[00:30:22] Ray Pace: I still, to this day, and it's so many years later, I remember cuz my daughter's 28 and she was born seven, eight days before I came home. So I wasn't there but uh. You know, so I, I, I missed it by eight days I, I couldn't get enough time knocked off to get here back in time, so, so it was a tough time, you know?

[00:30:43] Anjay Nagpal: Yeah.

[00:30:43] Ray Pace: My youngest one doesn't know all the details yet, you know, and sometimes my wife will say, yeah, don't say nothing, you know, want to guy, she's dating or whatever. I'm not ashamed. I'm not, I'm not afraid to talk about it because I know I didn't do anything wrong, you know, so I'm not, it doesn't scare me.

I'm not afraid of that. You know? It's kind of a tough deal to do with your kid, that's for sure. To. To explain that to 'em, what happened? You know, they think somebody went away. You're a bad guy. You know, it's not, that's not it, you know? I dunno if I had a thousand dollars on to my name after I came home.

I'm not exaggerating. You know, I had, I was there for nine months. I paid my attorney. I didn't borrow a dime from no one and used all the money that I had, which wasn't, I mean, that was it.

[00:31:26] Anjay Nagpal: Broke and unable to trade again. Ray came home to a beautiful new baby girl and began rebuilding his life. He worked on movie sets and eventually he returned to the floor as a clerk and he made decent money.

It must have been a bittersweet time for him though while he was back home surrounded by friends and family. He had to start over as a convicted criminal. Meanwhile, so many around him continued to prosper completely untainted by operations hedge clipper and sour mash.

[00:32:07] Ray Pace: I'm thinking, man, you guys really, you have no idea to get a bad day. You have no idea what you're talking about. You don't realize what just happened down here with, with us, with the guys that had a, I'm, I'm doing time for this stuff.

Are you kidding me? Really? I had to go away for nine fucking months for this. Miss the birth of my kid. I the first, for what? Commodity. Commodity fucking afraid. Is that what you're telling me? You know what I mean? So when I'm around, these guys took me a while to try and it's not their fault, you know, it's just sometimes you come home and you're really, really bitter. You're bitter. And I don't want to, I don't want to dwell on that stuff, you know?

It's not good. Yeah. Yeah. It's not good.

[00:32:57] Anjay Nagpal: Ray had buried the past and moved on running his boxing gym, the one we're interviewing him in right now clearly makes him happy. It's like he was always meant to end up here, but on this day, I could tell some of those old negative feelings were burning inside of him. I only hope that talking about it again, gave him a sense of closure.

For Sam Cali and Ray Pace pleading guilty ended the ordeal of a trial, but it turned their lives upside down. For the exchange leaders no trial meant the mountains of damning testimony in the Durkin document were never heard in court.

The last two people I interviewed for this podcast, FBI agent Dietrich Volk, and defense attorney Tom Durkin, really helped me understand why things went down the way they did. In theory, they were on opposite sides of this case, but you wouldn't know it from talking to them. Here's Dieter.

[00:34:26] Dietrich Volk: Everybody down there knew about the people that controlled that exchange were the people that could afford to buy the most seats.

Each seat was a vote, so the guy with the biggest pile of money who can buy the most seats, has the most control over the rules and the way things are done. The people that controlled the Merck came up and endorsed the system, and indeed, uh, took advantage of it.

[00:34:58] Anjay Nagpal: Dieter tried to go after the people in charge, both on the exchange level and within companies like ABS Partners. It was his job, but he also felt like he owed it to the traders who were cooperating.

[00:35:16] Dietrich Volk: A lot of it was care and feeding of the cooperators, which meant at least once a week, if not more, I would meet with them. It was important because, you know, you ever, you didn't go out and you purchase, make a large purchase, and then you're still checking the pricing for a week or two afterwards.

I wanted to convince 'em that they got a good price. I think it was beneficial. For their peace of mind to hear themselves and come to the r uh, reckoning. Yeah, I was sunk. I had to do this.

[00:35:51] Anjay Nagpal: Like Dieter Tom Durkin also learned the unspoken ways of the floor.

[00:35:58] Thomas Durkin: It certainly became very clear to me that the, that the Merck was run by a very small group of people, Jack Sandner among them, and I, I certainly didn't think Jack Sandner was a crook. Feds might have, I don't know.

[00:36:17] Anjay Nagpal: There was only one thing they disagreed on.

[00:36:21] Thomas Durkin: I think the FBI saw it all as fraudulent, and I didn't see it that way at all. And I, I think ultimately we were vindicated on that. I mean, I think that's pretty much how the jury's viewed it, uh, in some instances and, but you know, again, people went to prison.

[00:36:43] Anjay Nagpal: At the end of the day, it wasn't Durkin's job to go after the guys on top. His job was to defend Sam Cali, and he had some thoughts on why his client ended up in jail.

[00:36:58] Thomas Durkin: Well, I thought putting an undercover agent in the pit was too far. You have to understand what level of approval you have to get on a case in order to get an undercover agent into something like this. I mean, this has to be vetted all the way up into Department of Justice. Um, you know, undercover operations, by definition are very dangerous to civil liberties, I think. Uh, and, uh, so a lot of reputations get put on the line then, and that's kind of how some of these things happen that, once they make decisions to do that, then uh, then you better come up with something, you know.

[00:37:45] Anjay Nagpal: Think again about the cost and sheer scale of this investigation. The four undercovers lived the life of luxury for several years. They were given Rolex watches and fancy cars. They joined exclusive clubs and lived in expensive, high-rise apartments.

Then there were their six figure seats on the exchange and the money that padded their trading accounts. Dozens of additional agents were needed to handle logistics, paperwork, and forensic accounting. It all added up to one huge and expensive endeavor.

[00:38:29] Thomas Durkin: There's a lot of promotions involved. There's a lot of job security involved here, and, uh, I, I think a bit of that may have occurred here.

[00:38:41] Anjay Nagpal: The stakes were too high to come away empty handed, so they did make cases, almost 50 of them. Ray missed the birth of his daughter while he was in jail. T-Bun bartends at a dive bar in Chicago and 30 years after the investigation, we found Melanie Kosar still working at her family's dry cleaning shop.

Most of the people indicted never traded again, and those found guilty, now had a criminal record that was hard to recover from. But what about the people that ran things?

[00:39:21] Thomas Durkin: It was always quoted as saying, you know, this is not the cesspool that they say it or say it is. You know, that offended some people that I would say was not really a cesspool. You know, maybe a little shaky, they may not play by their own rules.

There was also no question in my mind from there were the rules in the book and then there were the real rules, and then there were the real people who ran things and if you knew the people that ran things that you got treated differently. But that's been the story in Chicago for if, if not everywhere else in the world for as long as I've been around.

[00:40:02] Anjay Nagpal: As for the government, they certainly had noble intentions, but it felt to most including Durkin that they missed what they were truly trying to achieve.

[00:40:16] Thomas Durkin: Those things happen sometimes in, in, in big federal investigations and, and like most investigations, the government is always hoping that somehow somebody will put them on to the big fish for bigger offenses.

Say, they didn't risk putting guys in the pit for this kind of nickel dime shit. They, they had to have other reasons to think that this could come within the net.

[00:40:48] Anjay Nagpal: And while no big fish were caught in the net, agent Volk told me that they were closer than anyone realized.

[00:40:57] Dietrich Volk: Well, I, I, you know, I can't really say that we never got close enough. We got one man away and his name was Sam Cali. It was just a tough nut to crack, I think we did get close. You know, I'm sure too close for Leo Melamed.

[00:41:13] Anjay Nagpal: We started out this segment with a story of Sam Cali who agreed to cooperate with the government and then changed his mind after a convincing phone call.

Volk remained steadfast that if Sam Cali, Ray Pace and other ABS Brokers cooperated, it would've led to more and bigger indictments.

[00:41:38] Dietrich Volk: The only thing I can say, which is we needed more of the same, whether it's on the streets of New York or the pits of Chicago or the Colombo organized crime family, uh, you don't start at the top. You unfortunately, you have to start at the bottom of their organization because they've spent years of building layers of insulation between themselves and the dirty work that goes on. It takes time. It takes years in most cases to get that, get those kinds of breaks.

[00:42:15] Anjay Nagpal: In the beginning, I thought this was a story about an epic standoff between hotshot traders and the fish out of water FBI agents who infiltrated them.

In the end, I realized that the traders and the agents, they're just foot soldiers. This was a war between the Justice Department and the power players of the Chicago trading world. This story is not well known, but it's a classic tale of greed and corruption in America In many ways, its reminiscent of a story that took place about 20 years later, the global financial crisis of 2008.

I only realized this after I read the sweeping allegations against the top brass of the Merc in the Durkin document.

The whole time I've been like, how come nobody's going after the big guys? How come nobody's going after the big guys?

[00:43:15] Danielle Elliot: Mm-hmm.

[00:43:15] Anjay Nagpal: At the end, we're like, look, one person tried to go after the big guys and it fucking got killed.

And this is what is wrong with like our society today, is that nobody fucking stands up and nobody cares, and everyone, you know?

[00:43:26] Danielle Elliot: Mm-hmm.

[00:43:27] Anjay Nagpal: It's like a ver, it's a version of like…

[00:43:28] Danielle Elliot: Everybody passes the buck.

[00:43:29] Anjay Nagpal: Exactly. And then I'm like, like Volk is the one guy who fucking cared, you know, you know, Leo Melamed and the heads of the exchange like they're, they're the bankers in a way. They're the bankers that didn't, never went to jail. You know, like that's literally the same thing.

[00:43:43] Danielle Elliot: Yeah.

[00:43:43] Anjay Nagpal: You know, this whole system was a just ripe for abuse. And people stole, obviously we established now that like everybody stole it was so fucking common. And everyone did it. And, and you know, Ray Pace goes to jail and again, Leo Melamed, is a hero.

And it's like, it's, it's literally 2008, you know, how long are we gonna keep fucking letting this happen. Like in 2008 pure greed mixed with financial engineering run amuck created a system that few understood and allowed those who created it to profit beyond their wildest dreams. Like in '08 the men in charge were never punished.

We all know about the crisis of '08 because it affected everyone. In this case, the faceless victims were less sympathetic. But my point in all this is corruption is corruption, and someone is always responsible for it.

The average CEO in America makes hundreds and sometimes thousands of times the median workers pay at their companies.

They enjoy all the success and wealth that they've earned when things are going well. So when they're not, let's hold them accountable rather than letting them blame a few bad apples.

Thank you for listening to Brokers, Bagmen, and Moles.

If you're still listening at this point in our show, I have two things to say to you. One, thank you, we are truly grateful and two, it's obvious there's more to the story, right? So right before we finished this podcast, we received a CD rom. Remember those from the government, which contained FBI case files that we requested two years before. The files confirmed something that we always thought, but were never able to prove that this investigation was about more than trading violations.

The stated objectives of the case read as follows, quote. Objective one, gather evidence against Chicago Mercantile Exchange brokers engaged in illegal non-competitive trading.

Objective two, gather evidence against Chicago Mercantile Exchange brokers engaged in violations of income tax, narcotics, and gambling laws. Until now the closest we ever got was talking to Agent Volk.

[00:46:31] Dietrich Volk: There were individuals trading in, uh, the S&P pit that were of interest to the Bureau because of their, uh, organized crime affiliations.

In many ways, we thought, well, you know, maybe they're there doing something beyond just trading and taking advantage of the abuses. Maybe they're moving money. We never got close enough to, to find out for sure. We were trying to.

[00:47:00] Anjay Nagpal: Volk admitted that they were looking for money laundering and mafia activity, but he said they couldn't come up with much.

As I think back on our interviews, there was something that T-Bun said way back that all of a sudden has a lot more meaning.

[00:47:18] T-Bun: They were looking, but they never found anything.

[00:47:21] Anjay Nagpal: And what we recently discovered is that the reason they never found anything. It's not because it wasn't going on, they just didn't know where to look.

This guy was, you know, had mob ties, was doing, uh, all kinds of questionable stuff down there and all these, you know, shady relationships. But, but somehow it was like barely mentioned in the book never mentioned any in the articles at the time.

[00:47:53] Stretch: It's hard to get to those guys.

[00:47:54] Anjay Nagpal: Yeah.

[00:47:54] Danielle Elliot: Right.

[00:47:55] Anjay Nagpal: Yeah.

[00:47:55] Stretch: It's hard to like, get close enough to them with a wire. Get him to say anything.

[00:47:59] Danielle Elliot: If they had gotten in with the right people and might have been able to hear some of these stories of like who was actually pushing money up to the outfit?

[00:48:05] Stretch: He was shaking traders down for money. You know, every Christmas he'd come around and you'd have to step out of the pit and hand 'em a big wad of money, you know, like.

[00:48:14] Danielle Elliot: They knew that when he sort of extorted money from people, it got spread out to the wise guys. So that was just kind of common knowledge.

[00:48:22] Stretch: So that's the guy that's his mob boss on the street, so to speak.

[00:48:26] Danielle Elliot: Mm-hmm.

[00:48:27] Stretch: Like that would be the guy he would like his family he would kick up to trading floor was just a good money maker for that family.

[00:48:40] Anjay Nagpal: Before you go. If you or someone you know might have a hot tip or just a funny story related to our show, we have a hotline for you. Call us at (646) 820-1452.

That's 646 820 1452. And please follow us on social media. Our handle is @entropymediaco. That's at Entropy Media Co where we'll be posting additional information about the case and awesome behind the scenes action.

This has been a production of Entropy Media in association with Stretch Productions.

This is Entropy's very first show, so if you've enjoyed it, please follow wherever you listen to podcasts and rate us there too. Every follow rating or even a personal recommendation to a friend or family member really helps.

I'm your host, Anjay Nagpal. Our showrunner and senior producer is Danielle Elliot.

Our producer is Jenn Swan.

Our executive producers are Tim Hendricks, Kevin "Stretch" Huff, and Dennis Stratton. Original music, sound design, and editing by Gerard Bauer.

Music clearances by Deborah Mannis-Gardner from DMG Clearances.

Production legal by Bruns, Brennan, and Berry.

Legal clearance/Fair use by Rachel Strom at Davis Wright Tremaine.

Fact checking by Delilah Friedler.

Show art by Rebecca Hendin.

And from Entropy Media, our in-house executive producer is Josh Fjelstad. Our head of operations is Nuna Eboe. Our project manager is Sebastian Perry. Our associate producer is Heidi Roodvoets. Our development coordinator is Simona Kessler.

And I wanna send a very special thanks to Laurie Morse and David Griesing.