Brokers, Bagmen, & Moles TRANSCRIPTS

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

[00:00:05] Randy Janett: It was chaos. It was, uh, not something that I ever thought could be pierced.

[00:00:11] Michael Bassett: I'm not a trader, I'm an FBI agent, posing as a trader.

[00:00:15] Randy Janett: Oh, this is dirty, and you know, click the recorder on.

[00:00:18] Michael Bassett: You're in danger of compromising the other things you're doing.

[00:00:21] Randy Janett: I've been an FBI agent and I've been trying to make a case against criminal activity down there, and you and I did some of it.

[00:00:35] Stretch: Yeah, so we're in, uh, the South Loop, the Financial District we're on. Uh, this is Jackson Boulevard, which is the world-famous Chicago Board of Trade right here. Uh, been there for over a hundred years.

[00:00:48] Anjay Nagpal: This is Stretch from a few years ago when we first began this podcast.

[00:00:53] Stretch: And across the street over here is the Dirksen Federal Building, which of course, uh, you never want to be in there because you're either serving jury duty or you did something really bad.

[00:01:05] Anjay Nagpal: The Dirksen Federal Building is home to the US District Court of the Northern District of Illinois, and Stretch was right. It wasn't a place you wanted to end up. Not only did it house federal, criminal, and bankruptcy courts, it was also home base for the Chicago unit of the FBI.

[00:01:25] Stretch: So, I mean, there had to be hundreds of FBI agents in the city in the late-‘80s, early ‘90s, going after all kinds of corruption in this city. So, you know, that's the nickname, uh, Crook County, so to speak.

[00:01:37] Anjay Nagpal: Four of those FBI agents were on the floors of the exchanges just a few blocks away from the Dirksen Federal Building. For the traders who would be indicted, this is where their trials were held.

[00:01:51] Stretch: The court trials, all the guys that went to court, it all played out right there. And the ones that were able to, they just walked back and were able to start trading again. And some people had to leave the business. But yeah, just a weird coincidence that they're a block apart. And like I said, never wanna be in these buildings.

[00:02:13] Anjay Nagpal: I'm Anjay Nagpal and this is Brokers, Bagmen, and Moles.

[00:02:23] Bill Crawford: There was no one case out there that sort of told you the whole picture. We just saw halves.

[00:02:30] Randy Janett: My stomach was burning when I would go to bed at night, I felt sick. So yes, I was very worried.

[00:02:37] Ray Pace: One of the guys were sleeping. I said, well, this could be good or this could be bad. I dunno which one it's, but.

[00:02:42] Leo Melamed: I think it's no more than that percent of rotten apples that every industry has.

[00:02:47] T-Bun: The prosecutor wants to be, the law firm that's getting the guys off. The guys in the law firm wanna be the judge. It's all the fucking circle.

[00:03:03] Anjay Nagpal: The world first learned that FBI agents were infiltrating the Chicago Mercantile Exchange and the Chicago Board of Trade in January of 1989. Seven months later in August, the indictments in this case were finally announced.

[00:03:21] News: The FBI used extraordinary means to detect. Extraordinary fraud.

[00:03:26] Anjay Nagpal: Many of the articles and news reports at the time talked up the severity of the crimes.

[00:03:34] News: The indictments, which are returned today, charged in each and every instance the participation by brokers and traders in an illegal schemes, which defrauded customers. What we are talking about here are hundreds of customers involving thousands of trades in which fraud was perpetrated and losses incurred by those customers. Because of this scheme.

[00:03:57] Anjay Nagpal: Technically there were two separate FBI investigations.

The one at the Board of Trade was called Operation Sour Mash. And the one at the Merc was called Operation Hedge Clipper. Not quite as cool as other local investigations like Operation Greylord, Operation Family Secrets, or my favorite, Operation Silver Shovel. Each of the operations had two separate trials, one for each pit an FBI agent was in for a total of four trials. As the government built their cases they realized they had their work cut out for them. Here's FBI undercover agent Randy Janett.

[00:04:44] Randy Janett: Prosecutors, you know, reviewed the 302s and decided which cases they wanted to make.

[00:04:51] Anjay Nagpal: 302s were the daily reports that agents had to write to memorialize what happened in the pit that day.

Kind of like a crime diary. There's roughly 250 trading days a year. And the agents were in the pit for almost two years. That's a lot of reading. No wonder it took so long to get to trial.

[00:05:13] Randy Janett: There were a lot of quote, illegal trades done that weren't charged because they were smaller in scope and not believed to be, you know, endemic to what those guys were doing or not provable that it was.

So we, uh, went with what we could and they picked out. We didn't, you know, we never can choose our own cases for prosecution. It's up to the prosecutor what they feel comfortable with.

[00:05:35] Anjay Nagpal: One thing they were comfortable with was convincing traders to plead guilty. In the first of four trials that strategy worked for Agent Mike Bassett over at the bond pit at the Board of Trade.

[00:05:49] Michael Bassett: There was one broker who agreed pretty quickly, uh, to just plead out and be done with it. Uh, the second broker, the one that I dealt with most frequently, uh, in my in during the operation. Changed lawyers a couple times and was just held out for quite a while before he ultimately ended up pleading out and as a result, had to plead out to the whole thing, is my recollection.

[00:06:10] Anjay Nagpal: Only three traders were indicted in the large bond pit, two brokers and one clerk, and all three pled guilty, so there was no trial. Next up was the Swiss franc pit, where Randy was. Randy's case like Mike's was a small one with only five traders charged. So far the indictments in these cases were not living up to the sweeping allegations of the government.

[00:06:40] News: As many as a hundred brokers and traders are alleged to have systematically cheated customers out of millions of dollars.

[00:06:48] Anjay Nagpal: Randy remembers one of the guys in his pit who cooperated. His name was Bill Walsh. We outlined how Walsh used Agent Jackson as a Bagmen in episode eight.

[00:07:01] Randy Janett: Finally near the trial date, uh, reached a cooperation agreement. I was shocked because of what I'd been told about his lawyer. And, um, so the first time we sat down to go over stuff, uh, and again, he always called me Jackson.

[00:07:16] Anjay Nagpal: Jackson was Randy's undercover name.

[00:07:19] Randy Janett: He said, Hey, Jackson, I just wanna tell you man, I, uh, I owe you. For getting me out of this, and I did not buy that.

I said, look, Bill, here's the deal. I was doing what I was doing and you were doing very well in your life, and you do not have to kiss up to me by saying I'm a good guy. I know I ruined a big part of your life for now, which I know you'll recover from, but I don't want to hear any of this false. He goes, I'm serious.

My stomach was burning when I would go to bed at night, I felt sick. I couldn't sleep. He goes, now that this is all behind me, I sleep like a baby and I realize I had to get out of there. I said, all right, well you don't owe me anything.

[00:07:59] Anjay Nagpal: I asked Randy if he thought Bill felt guilty for stealing from customers and if that was why he couldn't sleep at night.

[00:08:08] Randy Janett: No, I think it was the stress of being there and um, you know, Bill never felt guilty when I would hand him 800 bucks to fly away for the weekend. No, he was okay with that.

[00:08:17] Anjay Nagpal: As in the guy never felt guilty when Randy helped him steal from his customers. In total, two of the five traders indicted in Randy's pit cooperated, leaving three that would go to trial and fight the charges.

Although the federal government has a 95% conviction rate at trial, Randy was still worried if the jury would be able to understand the complexity of the crimes.

[00:08:46] Randy Janett: Even with my friends today, they'll say, Hey, so what was that case about? And I'll start explaining it about locals and then outside traders.

Well, hold on. I don't, what are you saying? And I'm, it's, it's a mess. It's just stealing. That's all it is. It's hard to explain and unless you're there sitting, watching, and absorbing it, or have worked in it. It's not easy to grasp. So with a jury, darn right, a lot of white-collar cases are very complicated.

So yes, I worry very much about not only judges, old judges understanding this, but a jury people do not want to put somebody away unless they're sure. And I'll be real honest with you on a lot of white collar cases, they're not. So, yes, I was very worried.

[00:09:46] Anjay Nagpal: A full 15 months after the investigation was leaked, Randy's case finally went to trial. It was May 10th, 1990, a cloudy, windy day with scattered showers and a high of 54 degrees. Or what we call in Chicago a beautiful spring day. The courtroom was packed with friends and family of the accused and fellow traders who were there to show support.

The opening remarks of the trial were full of fireworks.

[00:10:33] The Trial: Randall Janett was unable to correctly perceive events as they occurred right in front of him. He didn't have the slightest conception of what he was doing. He was either simply confused or utterly incompetent.

[00:10:53] Anjay Nagpal: After the opening statements, things did not get any easier.

[00:10:59] Randy Janett: And then I think I was on the stand for two weeks and, uh, it, it was pretty vicious cross-examination. A lot of accusations that were untrue.

[00:11:09] Anjay Nagpal: During his first day on the stand, Randy stumbled. A defense attorney asked him to show the courtroom some of the hand signals used in the pit.

When asked to show a sell signal, he held his arms out and gestured in towards himself. Unfortunately, that's a buy signal. The court full of traders who understood the pits erupted in laughter. Although Randy was rusty with the hand signals, he did have his tape recordings to play for the jury, and he had hours of them.

A lot of what was captured according to the government were secret prearranged trades between brokers and locals. And those were illegal because all customer orders were supposed to be announced loudly in the pit, creating an auction process that gave all locals an equal chance to trade with the broker.

[00:12:08] Randy Janett: There were some bad trades. This may have been the day that I, that the markets went crazy. They ended up putting limits in the swings of like a hundred ticks and it would stop. So there were things that had to be fixed.

[00:12:22] Anjay Nagpal: What he's saying here is that the markets were moving so quickly one day that Brokers didn't get all their orders filled at the correct prices.

[00:12:32] Randy Janett: Those trades were, um, were handled by a brokerage group. I turned my recorder on. The defense was, Hey, you know, yeah, this what you heard. That was, he was just confirming earlier made trades.

[00:12:48] Anjay Nagpal: Defense attorneys quickly pointed out that after trades were made in the pit through a combination of shouts and hand signals, it was a rule that traders had to vocally confirm their transactions. So the defense was claiming that the tapes didn't capture illegal prearranged trades. What they actually heard were traders just confirming recent trades.

[00:13:15] Randy Janett: But you know, it's a good argument. It's a good defense, but unfortunately for the defense, they brought in as an exhibit the actual trading cards, and you can follow the times on them and the prices on the exchange. These were done way after those trades would've been made initially.

[00:13:33] Anjay Nagpal: Back then, all traders recorded their activity on what looked like little note cards, and they did this with a pencil mind you. Randy is saying that prosecutors cross-referenced the time and price on the trading cards with official exchange records and they did not match up.

[00:13:53] Randy Janett: And then if you listen to the tape, no, no, that's wrong. It'd be marked out. And then you'd go down and write something under it and this attorney picked it up and he's, you know, he didn't, he goes, what do you see here?

And I smiled and I said, this proves what I've been saying. He goes, I thought so. Obviously a miscalculation by his defense attorney. Yeah, it was a mistake. Big mistake.

[00:14:18] Anjay Nagpal: It went back and forth like this for almost three months. It's important to know that every trader indicted for crimes in the Swiss franc pit was included in one big trial, and it was like that for all four trials in the investigation.

That's not uncommon, but it's a big reason the trials would take so long. Each charge against each trader had to be laid out by the prosecutor and examined by each trader's defense attorney.

[00:14:49] Randy Janett: They have a rule in court, if you are a witness in a case, you are not allowed to be in there while other people are testifying so that your testimony is not tainted by trying to agree with them.

So they invoked the rule, as they call it, and I had to wait in the US attorney's office, so I remember. Six weeks, eight weeks. I don't know.

[00:15:10] Anjay Nagpal: Every defendant had their own lawyer, and each defendant's lawyer cross examined the agent on the stand, but you know who didn't take the stand? One single victim of the crimes being prosecuted. I asked Randy about that.

[00:15:28] Randy Janett: They have no relevancy to the trial. They have no facts. What could they testify to? I'm a customer and I put in an order. They knew nothing of the facts of this case. All they could say was, I put in an order and we know that. So there's no relevancy to the case. They would not be of value.

[00:15:44] Anjay Nagpal: I would think if it was really the case that customers like ADM felt ripped off, they could probably gather some evidence of trades that displayed bad prices or fills as they're known. It felt like a lost opportunity for the government because if a jury couldn't understand the complexity of illegal trades, maybe they could understand a victim who was harmed by those trades.

Instead, it was just day after day of monotonous and repetitive detailing of trades, playing hours of chaotic tape recordings, and arguing about what everyone was actually hearing on the tapes. Here's a few seconds of an actual FBI recording from inside the pit.

Can you imagine being a juror at any of these trials? Here's Chicago Tribune reporter Bill Crawford, who we spoke with in episode four, describing the scene.

[00:17:02] Bill Crawford: This was not a trial that you went in in ducked a few minutes and came out. Some of these traders were young. I mean they're mid to early twenties and some of 'em even in court would like make faces and I mean, nobody seemed to think that this had the drama. The government expected it to have.

[00:17:22] Anjay Nagpal: One had to wonder, is this really how the government saw the trials playing out?

[00:17:28] Bill Crawford: I covered probably 80% of those trials. Half the jurors went to sleep and I'm, in retrospect, it was chaos. In the middle of some of these trials, they would plead guilty, just pleaded out. Principally because these are small traders, they've got expensive defensive attorneys, they can't make make the payments, but you're gonna see a reduction of of, of charges mistrials.

There was no one beautiful solid case out there that sort of told you the whole picture of what's going on. We just saw cans.

[00:18:04] Anjay Nagpal: On July 9th 1990, the jury returned a verdict in Randy's Swiss franc case. The result, a hung jury on 85 of the 115 charges, and there were no guilty verdicts on serious charges like RICO mail fraud or wire fraud.

As previously mentioned, a few traders ended up pleading guilty to minor charges in order to end their ordeal. Saving money on legal costs and avoiding any chance of being charged with serious conspiracy or racketeering charges. With two of the four pits down, the government had no major wins under its belt.

It was clear Chicago's traders played fast and loose with the rules, but the government was failing to expose large scale theft or any conspiracy to defraud customers. Next up was the soybean case. John Ryan, the first trader we interviewed in this podcast was one of 19 indicted in that pit, and we'll hear from him after the break.

[00:19:35] Anjay Nagpal: In the first two trials, the government only indicted eight traders, and they didn't do very well in court. But the soybean case was a different story with 19 traders indicted. We've already spoken with two of those traders. First was John Ryan.

[00:19:57] John Ryan: And they didn't do a very good job of grasping what was going on because nobody understood the commodity business.

[00:20:04] Anjay Nagpal: Then there was Dave Skrodzki, who we interviewed in episode six. He cooperated and testified against his fellow traders.

[00:20:13] Dave Skrodzki: Fish or cut bait, or again, and you're not supposed to be a trader but you know, sometime you gotta get out. And I was like, I'm, I'm getting out. But I hated doing it.

[00:20:22] Anjay Nagpal: The government needed a win badly, but it didn't get off to a great start.

[00:20:29] John Ryan: The judge in the trial would sit there and draw circles, and his only reaction to anything was, we'll let the jury figure that out, and the jury was half asleep most of the time, so it wasn't a good experience. And I spent four and a half months in court.

[00:20:47] Anjay Nagpal: Just like Randy's Swiss franc trial, the soybean trial was confusing and tedious.

[00:20:53] Anjay Nagpal: John and the other traders faced long days in court and huge legal bills.

[00:21:00] John Ryan: Well, if my name was mentioned, uh, twice a week, it was a lot, but I had to sit there and I don't wanna tell you what it cost me to go through that both financially and mentally. Dave Skrodzki as a cooperating witness who had already pleaded guilty, had a more bearable experience.

[00:21:22] Dave Skrodzki: I only appeared day and a half maybe. I had to spell out what I would do you know how I paid people back if I had an out trade with you, but I wasn't necessarily grilled, not every guy's attorney questioned me just a few.

[00:21:39] Anjay Nagpal: Dave was spared the tedium of a lengthy trial and the costly legal bills that came with it. Although the defense didn't slander him like they did to some government witnesses, there were others in the courtroom who were not so friendly.

[00:21:56] Dave Skrodzki: There was two guys that I was quote unquote friends with who came to see me testify. They never heard from 'em, never talked to 'em. They just showed up I saw 'em sitting in the back of the courtroom. I don't know. They wanted to see me shit in my pants, which I practically did, or they wanted to hear what I had to say, but.

[00:22:13] Anjay Nagpal: Fortunately for Dave, the intimidation was as far as it went, as the verdicts were handed down, he knew he had made the right choice.

[00:22:23] Dave Skrodzki: Once everything played out and then I saw the sentencing in the 18 months and this and that, and then co charges and restitution, they had to pay the fines, and I was like, no, I did the right thing.

[00:22:41] Anjay Nagpal: The jury in the soybean pit returned guilty verdicts on 250 of the 303 charges. Including conspiracy and felony charges for several of the traders that fought the government. Were the soybean traders really that much more crooked than the folks in the Swiss Frank Pit? I don't think so. A few factors contributed to this stark difference in outcomes.

One: Agent Carlson was the first agent assigned to this case, so he had a lot more time to train and learn the ways of the floor, and it paid off.

[00:23:20] Dave Skrodzki: Easy-going guy, you know, easy to talk to friendly play he played his role well, good actor.

[00:23:27] Anjay Nagpal: Another contributing factor was that Dave wasn't alone in cooperating with the government.

In fact, almost half of the 19 traders indicted in the soybean pit pled guilty, and that made it a lot easier to convince a jury that they were all guilty. Last up was the Japanese yen pit where trader Ray Pace knocked a broker off his feet in the heat of competition, but Ray Pace wasn't on trial for that.

[00:23:58] Ray Pace: You're looking at twenty years. You know, RICO was attached to this case in the beginning, which is even more ridiculous. That's 20 years mandatory. And for commodity infractions for a commodity case.

The yen pit is where Agent Dietrich Volk's stellar work resulted in the indictment of 21 traders, the most of any agent. When he went to trial, just like with Randy, the defense attorneys tried to discredit the audio tapes from the pit as not accurately capturing certain situations, and also tried to paint Volk as incompetent. One defense attorney told the jury

[00:24:39] The Trial: This one makes me want to puke. That agent, had no idea what he was doing on the floor in those pits.

[00:24:47] Anjay Nagpal: In addition, defense attorneys did a good job of casting doubt on Volk's testimony. They said he used coercive and even immoral measures to gather evidence.

[00:25:00] Bill Crawford: Covered one trial, and the defendant was a former postman. He happened to like his drink and they used to take him the, the two agents. Would take him to the Chicago Mercantile Exchange, lounge or whatever it was, and they'd lick him up and they would tell him how they were gonna help him with his taxes, get him a good deal, and he'd get shit-faced and he would happily agreed all of this and they indicted him. And they put his wife on the stand by the way. She breaks down in tears because the guy is a drunk.

[00:25:34] Anjay Nagpal: The broker in question was John Baker. Affectionately called the mutant peacock because of his bright trading jackets and flashy attire. We've talked about him in previous episodes. He's the one who was drunk on the couch eating a whopper and pounding old styles, when the FBI came to interrogate him. Here's how T-Bun described it.

[00:25:57] T-Bun: So they went to one guy's house, poor guy, and he thought they came to drink with him. He liked to drink beer, and he talked to 'em for like three fucking hours. You know, he was drunk but he didn't really thought they were coming like to party with him and his wife says, you, you're drunken bastard.

[00:26:14] Anjay Nagpal: Ray Pace also knew Baker from back in the day.

[00:26:17] Ray Pace: He was a good guy. He just wanted to go on and be buddies and drink at the bar after the close and stuff like that. I'm sure he had a lot more counts or more trades involved because he traded more with them. His problem was thinking that these guys were his friends and you know, obviously that cost him a lot.

[00:26:32] Anjay Nagpal: Believe it or not, drinking was at the core of Baker's defense. His lawyer said that the FBI took advantage of him because he was a drunk. They said Volk secretly recorded some 40 hours of barroom conversation with Baker, who they said was nothing more than an old man in a young man's business who abused alcohol to escape the pressures of trading.

The defense attorney went on…

[00:27:01] The Trial: Volk, decided it was a means to accomplish an end. He spent more time in a barroom with Baker than he did at any other time. You, you gotta draw the line somewhere.

[00:27:11] Anjay Nagpal: Baker's lawyer then proceeded to produce a receipt from the bar to prove that his client had as many as 15 beers in two hours.

He said that while Volk was on the stand, he downplayed the amount Baker had to drink because in his own mind, he believes he may have crossed the line by sitting there allowing a man to drink that much.

Only in Chicago, folks only in Chicago.

[00:27:44] Ray Pace: So I was in there for a few weeks. They sat for five months in trial. It was the longest trial that the judge had ever been over in his nine years on the bench. Five months they were in there and it's commodity infractions over and over and over. I mean.

[00:27:58] Anjay Nagpal: Remember, traders from each pit were being tried as a group. So Ray had to sit and listen to the defense for each of the 21 defendants in the yen pit.

[00:28:09] Ray Pace: You could look at the jury and I mean, what happens to somebody if they're hearing the same thing over and over and they don't even understand it? One of the guys was sleeping. I said, well, this could be good or this could be bad I dunno which one it is, but.

[00:28:21] Anjay Nagpal: Ray wouldn't stick around to see how the jury would vote because he and his lawyer didn't even think he should be on trial. This isn't system that these guys came up with. It was being done under it's, it was business the way business was done down there. We've heard this from Ray before.

[00:28:39] Anjay Nagpal: He says he didn't create the system that made cheating so easy and that it's been in place for years and years.

[00:28:47] Ray Pace: The thing that I didn't like is, some of those guys like Leo or you know, they would point the finger at like, these are the bad apples. You know, that didn't sit right with me.

[00:28:59] Anjay Nagpal: Ray felt like he was being thrown under the bus and it pissed him off.

[00:29:04] Anjay Nagpal: And I get it because Leo Melamed and the other heads of the exchanges, they're the ones that controlled how the trading floor worked. And they're the ones that made the most money from it, but they didn't take any responsibility for enforcing the rules of their own floor. Just listen to Leo from an old interview.

[00:29:25] Leo Melamed: Like any other industry, be it securities, be it banking, um, be it, Congress, has a a percent of, uh, bad people in it, and that percent, uh, gives you a pretty, you know, black eye. You like to unroot it and you like to throw it out, and we will, wherever we can find it, and we'll do a better job as a result of this notoriety, I'm certain. But I think it's no more than that percent of rotten apples that every industry has.

[00:30:00] Ray Pace: That's what I thought was really wrong, because there was none of them guys there, if they were in the pit, were conducting the business the exact same way they said that said they weren't then they're lying. You know? So, but they, they kind of like made us the, the bad guys, right?

[00:30:15] Anjay Nagpal: So Ray and another defendant named Sam Cali, their defense strategy was totally different than the other 19 traders in the yen pit.

Instead of fighting the charges and pleading not guilty, their defense was, yeah, we broke the exchange rules and we committed trading infractions, but so did everyone. And since it was standard operating procedure, they thought they couldn't be guilty of anything. It was a ballsy stance and the first time anyone tried to challenge the exchanges and their management for allowing fraud to take place.

The other defense attorneys were furious, still claiming that their clients were innocent.

[00:31:02] Ray Pace: The defenses were clashing with some of the other guys so they severed Sam and I and then we were gonna be tried at a later date.

[00:31:07] Anjay Nagpal: Ray Pace and Sam Cali asked to be severed from the main trial and requested a separate trial at a later date. With Ray and Sam on the sidelines the Yen trial came to an end after a grueling six months, which included 20 days of contentious jury deliberation. The results were shocking. There was not a single guilty verdict. A devastating result for the US attorney and the FBI.

[00:31:53] Ray Pace: I was standing in the pit and the Reuters on the tv, the screen, everybody threw up their cards. They were clapping cuz it says Yen traders acquitted of 80% of the counts. So the floor went nuts because it seemed like it was a victory that they had beat the government.

[00:32:08] Anjay Nagpal: For the 19 traders who just escaped the government's wrath, it was a glorious moment. So the traders decided to celebrate. The bar at the Merc Club was packed full of traders and a jubilant John Baker did, what else? But buy a round for everyone.

[00:32:27] Ray Pace: And everybody's patting me on the shoulder, Ray you guys are next. Like congratulating you almost saying you're gonna be fine. Everything's gonna be good. You're gonna beat this. Everybody was real optimistic at that time.

[00:32:42] Anjay Nagpal: Ray agrees the exchanges should have been cleaned up, but he didn't understand how this became a huge federal investigation.

[00:32:51] Ray Pace: That's, that's the only way I can explain it. Like you said, a small fine or maybe at best or worst case scenario, which should say, uh, a suspension or a fine.

[00:33:01] Anjay Nagpal: So do you think that the exchange itself should have policed a little bit harder?

[00:33:04] Ray Pace: Oh, I definitely do. Yeah. Yeah, I definitely do. I think this should have been handled by the exchange, not by the federal government.

[00:33:12] Anjay Nagpal: In a different world, maybe that would've happened. The FBI did handle this investigation and at the end of the day, here's the scorecard. In total, there were 46 traders and two clerks indicted, 20 pled guilty, of those who went to trial, 14 were found not guilty, and 12 were found guilty.

Two traders, Ray Pace and Sam Cali severed from the main trial. From a strictly numbers standpoint. Point 32 of 46 either pled or were found guilty. That feels like a lot, but it doesn't tell the whole story, and that's because the indictments themselves were pretty weak. There was a well-known hierarchy at these exchanges, and none of the people on top were so much as indicted.

So when you compare this case to the New York insider trading cases that resulted in Wall Street heavyweights like Boesky and Milken going to jail and paying nine figure fines, it's hard to argue that this was a successful outcome for the federal government. So did they do a bad job or were they destined to fail?

[00:34:37] Bill Crawford: There were two assistant US attorneys under Anton Valukas, one of them had a fairly good understanding of how the future markets worked, and he did a closing argument one day after a four or five day trial, and it was right on the money. It made sense. It couldn't have been three weeks later, another assistant US attorney gets up in front of a jury, it is time for closing arguments, and he borrows the closing argument from the first assistant US attorney, and he uses it, and I'm sitting there with my mouth half on the floor.

[00:35:20] Anjay Nagpal: Yes, you heard that right. A prosecutor borrowed the closing arguments from a prosecutor in one of the other trials. That's not illegal, but it does make you wonder if that prosecutor took the time needed to understand this case?

[00:35:39] Bill Crawford: And I leave the courtroom and I called up, Jim was his first name. I said, Jim, what did you do? Run your closing argument to so-and-so, and he said, Bill, copying is the finest form of of complimentary that I could possibly imagine. He acknowledged it.

[00:35:56] Bill Crawford: He let him use his closing argument. I mean, it's a different set of fundamental facts underlying the case.

[00:36:04] Anjay Nagpal: That prosecutor didn't knock it out of the park, but what about the guys at the top? One of them was US Attorney Dan Webb, who was in office when this case was first approved.

[00:36:19] News: Dan Webb has led the charge against judicial corruption, a no-nonsense prosecutor. He has gained a national reputation as a crime fighter.

[00:36:27] Anjay Nagpal: But Webb left the US Attorneys post in 1985 and he went into private practice. When this case came around, he secured himself a very interesting client.

[00:36:41] News: The Board of Trade also has hired former US Attorney Dan Webb, to advise its traders about federal white collar crime laws.

[00:36:49] Anjay Nagpal: That's right. Webb was hired as a legal consultant by the Chicago Board of Trade. Here's David Greising, author of the book, Brokers, Bagmen, and Moles.

[00:37:01] David Greising: Our reporting showed Dan Webb launched the investigation and then he was brought in as counsel to one of the exchanges that, um, that would seem to be a conflict of interest.

[00:37:21] Anjay Nagpal: And it gets worse. Remember the trader from the beginning of the episode who held out before pleading guilty to RICO charges?

[00:37:30] Randy Janett: The second broker, the one that I dealt with most frequently, uh, changed lawyers a couple times and was just held out for quite a while before he ultimately ended up pleading out and as a result, had to plead out to the whole thing, is my recollection.

[00:37:43] Anjay Nagpal: After changing lawyers a couple of times he ended up with, Dan Webb. Webb convinced that broker to be the first trader to plead guilty to conspiracy charges likely so that all the other traders would be scared shitless. The whole thing feels dirty. Or as T-Bun puts it…

[00:38:10] T-Bun: Dan Webb, here's a guy who's a, wants to put everybody in jail and now, he charged you 700 an hour to represent you. It's all like a group. The prosecutor wants to be in the law firm that's getting the guys off. The guys in the law firm wanna be the judge. It's all a fucking circle.

[00:38:31] Anjay Nagpal: In their book authors David Greising and Laurie Morse went further. They said that this broker's guilty plea quote, cemented the government's resolve to stand by the RICO charges against other traders seeking to arrange plea agreements, unquote. So yeah, it's all a fucking circle. I wondered if in hindsight, FBI agents, Mike and Randy thought the investigations were worth it. Here's Randy.

[00:39:06] Randy Janett: I do. Uh, and the reason I do is not because we got 10% or even 5% of the people that were doing the same stuff, but I think it needed to be brought forward that this was happening and opened the doors for the people that had the authority to do something, to do something. For, for doing things in the pit you were, you know, the self-regulation was a joke. Like when Ray slugged that guy, I think he was given a week out.

[00:39:35] Anjay Nagpal: I have to agree with Randy here. Self-regulation was a joke.

[00:39:40] Michael Bassett: I think our attitude was as an undercover, I did accomplish what we were supposed to accomplish, exposing in the pit I was in, and I knew the other agents had exposed the same type of conduct that had been hidden too. There were no targets. It was just, we had four agents, we put 'em in four spots. They all found the same thing.

[00:39:57] Anjay Nagpal: This conversation helped me to understand that the FBI isn't judge, jury, and executioner. It was part of a much larger system.

[00:40:08] Michael Bassett: My expectation was that what would happen would be that with the exposure of what was going on at the exchanges, that all of this, you know, kind of shroud of secrecy that surrounded the business at the exchanges as far as how efficient everything operated.

It kind of poke a pin in that bubble and make the public realize, and more importantly, the regulators in Congress realize that this doesn't work.

[00:40:29] Anjay Nagpal: The FBI's main role in this case was to show that the exchanges were crooked and, while not as impressively as they'd hoped, they accomplished that mission. As for making sure the exchanges were properly regulated…

[00:40:45] Randy Janett: That was beyond our pay grade. That wasn't our job. I think our job was to at least show it was in existence and that's Congress's job. Or you know, people higher up to address it.

[00:41:00] Anjay Nagpal: While I might not have agreed with their methods, I definitely see why these markets needed to be cleaned up. Reading thousands of pages of trial transcripts has shown me that there was much more theft than I originally thought.

One broker even bragged to an agent that he had four bagmen in his pit that were good for a hundred thousand dollars or more in a given day. The indictments mentioned some heavy duty illegal trades. They weren't all $12 and 50 cents like T-Bun said. Maybe I just let my personal thoughts about guys like Ray and T-Bun cloud my ability to see the big picture.

[00:41:41] Randy Janett: The more you expose, the more impetus there is for change, for cleaning it up for the, for the customers, you know? So let's get this out and let's see if the public and the government wants to do something about it, that's not our job again.

[00:41:59] Anjay Nagpal: As Randy and Mike said, that was Congress's job, and shortly after the investigation was announced, a Senate subcommittee called on the heads of the Merc and the Board of Trade to answer some pretty tough questions.

[00:42:14] The Trial: What does that do for confidence in these markets? What do we say to the farmers out there who, uh, are dependent on these markets to get a fair deal?

The system has simply not worked. Rules have been ignored, customers have not been protected, and without the public's trust futures markets cannot function.

I'll say there's some out there in those exchanges that are ill-trained and ill-motivated, and they ought to be found out and eliminated.

[00:42:47] Anjay Nagpal: That's next time, on Brokers, Bagmen, and Moles.

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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.

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