Brokers, Bagmen, & Moles TRANSCRIPTS

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

[00:00:05] News: Traders were shocked today with news that undercover FBI agents posed as workers here for two years.

[00:00:11] Ray Pace: Nobody ever told us anything we were doing in that pit against the law. Not ever.

[00:00:16] T-Bun: What the fuck are we doing? We're doing, we always, we've been taught to do.

[00:00:20] News: The pits have been labeled as criminal enterprises, but only individuals are implicated, not the exchanges themselves.

[00:00:36] Gordan Gekko: The point is, ladies and gentlemen, that greed, for lack of a better word, is good.

Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind—and greed, you mark my words, will not only save Teldar paper, but that other malfunctioning corporation called the USA. Thank you very much.

[00:01:20] Anjay: That was Michael Douglas playing Gordon Gekko in Oliver Stone's classic film, Wall Street. The speech was the film's defining moment and it won Michael Douglas, the Oscar for Best Actor.

Believe it or not, though, the speech was not pure fiction. It was actually inspired by a commencement address delivered in May 1986 by a prolific stock trader named Ivan Boesky. The real-life Boesky was a lot like Gekko. Here's how one reporter described him.

[00:01:53] News: I call him the silver fox of risk arbitrage. He was a smooth, poised, shrewd, and cunning man. Most impressive.

[00:02:02] Anjay: But he wasn't quite shrewd or cunning enough, as the world would learn a few months after that speech.

[00:02:11] News: Ivan Boesky, a leading Wall Street takeover specialist, agreed to pay a record $100 million penalty for insider trading abuses.

[00:02:21] Anjay: I was in grade school when the Securities and Exchange Commission or SEC caught Boesky in what can easily be summed up as insider trading 101. My dad watched the business news religiously, so I always heard the big headlines even though I didn't understand them.

[00:02:38] News: Former junk bond dealer, Michael Milken, was sentenced to ten years in prison today.

[00:02:43] Anjay: The SEC went on to catch more than forty Wall Street brokers on charges of insider trading. But Chicago's futures traders weren't worried at all. Because the Board of Trade and the Merc were not regulated by the SEC.

That responsibility fell to the smaller and weaker Commodities Futures Trading Commission or the CFTC. According to Merc Chairman, Leo Melamed, the CFTC was doing a great job. Here's Leo being interviewed shortly after the investigation became public.

[00:03:18] Brian Lamb: What's the impact of the story that came out in January about the FBI agents infiltrating the floor?

[00:03:24] Leo Melamed: Much of that was overdone by the media because it's nowhere near what it was reported to be. Our record from the, uh, CFTC as a matter of fact, was the best of any futures exchange in the country, I believe. And probably as good a record as any securities exchange has as well. So I, I, I think the Chicago market comes off looking pretty good.

[00:03:48] Anjay: I'm Anjay Nagpal and this is Brokers Bagmen and Moles.

[00:04:04] Bill Crawford: Upper management was soiling their underwear.

[00:04:09] Leo Melamed: I am going to move the financial center of gravity out of New York.

[00:04:15] David Greising: The amount of influence they had over Congress was palpable. If they could make their own rules.

[00:04:21] Bill Crawford: You know, you're dealing with some big material.

[00:04:24] Leo Melamed: The sky was the limit. I was like a kid in a candy store.

[00:04:28] Bill Crawford: You've had four agents undercover for two years. There's gotta be something there.

[00:04:39] Anjay: You are okay with, um, us recording this call? Yeah. Can you please, uh, just tell us about your career up until the time that, that you were at the Tribune on the business beat.

[00:04:49] Bill Crawford: Uh, so that's a long story, but nonetheless, I graduated from the University of Chicago a million years ago. I kicked around. For about...

[00:04:57] Anjay: That's Pulitzer Prize-winning journalist Bill Crawford.

Bill broke the story for the Chicago Tribune back in January of 1989.

[00:05:06] Bill Crawford: We had a, um, editor come to town. He threw the, uh, personnel roster cards up in the air and wherever your name landed, that was your new assignment. I landed in the futures exchanges. Uh, I had no clue where the Merc was even located, let alone the Board of Trade.

I didn't have a degree in business.

[00:05:28] Anjay: I'm not sure why Bill thought he might need a business degree, considering most traders didn't have one.

[00:05:35] Bill Crawford: 99% of everybody in Chicago had no clue of what they did for a business. I had to learn all of this on my own, and I must say it probably took a solid year. Before I had a real clear understanding of precisely what in the world they did for a living and why anybody cared.

[00:05:57] Anjay: Bill quickly figured out that this place did not bear much resemblance to the New York Stock Exchange. Most of his stories revolved around scandals rather than trading.

[00:06:07] Bill Crawford: It was one of the strangest, strangest cases he traded in the, uh, treasury bond pit. And he would put a wig on and he had phony credentials.

And if he wins a trade, he puts it in his pocket. If he loses his trade, he throws it on the floor. Gets caught, gets indicted, and um, his defense is that he's going through a bitter divorce. Uh, therefore he was hiding all this, uh, well, a side income from his wife, soon-to-be ex-wife by putting on the phony disguise.

[00:06:41] Anjay: I guess you call that pre-internet identity theft. The next week, he wrote about 18 members of a Boston based broker group who were caught trading on insider info. The year was off to a busy start, but it was only the beginning because during the third week of January, Bill received a tip from a colleague in Washington DC.

[00:07:04] Bill Crawford: I had been tipped off that a major, major hammer was coming down.

Be careful of it. We never really got into any specifics. And suddenly at, I think it was a Wednesday afternoon, about two in the afternoon, it became abundantly clear. What was, what was afoot.

Who precisely told me that I, I would not feel comfortable talking about that.

[00:07:27] Anjay: I tried to get Bill comfortable enough to reveal the source, but he wouldn't budge.

[00:07:34] Bill Crawford: Now, we were gonna save the story for Sunday. There was no internet in those days. Sunday was the killer newspaper. You came out with a bold headline. Well, suddenly it's a Wednesday afternoon and the call comes in now, now.

[00:07:51] Anjay: For those of you old enough to remember the joy of a thick newspaper on your front porch at the crack of dawn every Sunday, you understand why they'd want to hold the story for the weekend. But this was a huge and timely leak.

And the trip did not want to wait. So they called US Attorney Anton Valukas for comment.

[00:08:12] Bill Crawford: I dealt with four US attorneys and they all have magnificent egos. And the one that we were dealing with at that time had a particularly massive ego. And he got word that the Tribune was about ready to bust something and he was not a happy camper.

[00:08:32] Anjay: US attorney Anton Valukas did not want the the story released. And while the Tribune wasn't gonna wait, they did do their best to understand the story before going to press the next morning.

[00:08:46] Bill Crawford: They assembled this enormous army of reporters. There are probably 20, 25 of us to just spread out all over the city to pick every bit and piece we possibly can off the floor of wherever we can find it.

Half the 25 are asking where the board of trade is, and the other half are asking where the Merck is.

But the point is this, you've had four agents undercover in both two exchanges, had four trading posts for two years. There's gotta be something there.

[00:09:19] Anjay: That is exactly how I felt. There's gotta be something there.

[00:09:24] Bill Crawford: We jam it into Thursday morning's paper and all hell breaks loose.

[00:09:32] News: The FBI in Chicago has been looking into charges involving multi-million dollar fraud on the world's two largest commodities exchanges.

[00:09:40] Bill Crawford: This blanket of subpoenas that went out to 700 corporate entities, uh, throughout Chicago.

That was clearly a, a strategic move to, you know, this is a major deal, this we're not screwing around, blah, blah, blah.

[00:09:53] Anjay: Fear tactics like mass subpoenas and harassment of traders in the middle of the night. They drummed up a lot of attention, but ultimately Bill and his colleagues didn't come up with much.

[00:10:05] Bill Crawford: And we're making calls all over Chicago and no real explanation is coming up.

And so we come up with these stories that are just, they're nonsensical, they're stupid.

[00:10:17] Anjay: The reporters were writing 1989's version of clickbait. Descriptions of potential illegal trading strategies. Rumors that there were as many as 20 agents on the floor. Speculations about how the F B I might have carried out the investigations.

I've read them all, and it's pretty clear that the splashy headlines distracted from the lack of substance. So what were the known facts in the days after the headline?

[00:10:45] Bill Crawford: We just know that they're looking at mistrades, wrongful trades on the floor of the two exchanges.

[00:10:53] Anjay: Were these mistrades, just the fixing of unintentional and minor mistakes? You know, like T-Bun and Ray described to us in previous episodes? Or were they signs of a wide ranging criminal conspiracy?

[00:11:08] Bill Crawford: We have no idea. I have to tell you, this upper management was soiling their underwear.

There's all this rambling going on about the possibility of wrong doing, and again, it gets back to my original point was to go after Mr. Number One and Mr Number Two.

[00:11:31] Anjay: Finally, someone who thinks that the investigation probably had grander ambitions.

You just mentioned number one and number two, it sounds like you're talking about the, the heads of the exchanges. And are you implying that, that that's what you think the big goal of the investigation was?

[00:11:50] Bill Crawford: I, I will say this much. That the, that the real wrongful stuff was going on at a level that was, I mean, it's going on my God, at the higher level.

[00:12:04] Anjay: On, on the exchange level, or, no,

[00:12:06] Bill Crawford: I think this is something I'd have to sit down and talk to somebody, mano to mano. Off the record. I, I, I just, I can't be airborne, you know, you're dealing with some big material.

[00:12:16] Anjay: It sounds like you've got, um, some serious information.

Serious information that he wasn't about to give up, at least not while we were still airborne.

Even though Bill couldn't reveal his source, I felt vindicated.

I was hoping to hear that the FBI had bigger targets than guys like John Ryan and Ray Pace. Bill went one level further and told us that not only were the higher ups at the exchanges nervous, but that there was stuff, and I assume he meant illegal stuff going on in the executive suites.

Mr. Number one, as Bill referred to him, is longtime Merc Chairman Leo Melamed. He's got a squeaky-clean reputation, but I still wanted to learn more about him. Tim knew just the guy to call.

[00:13:17] Vinny Provenzano: Went to work for Leo Melamed in 83 and stuck with him for 16 years. He's a difficult guy to work with. He knows everything. The best thing is to stay out of his way and just keep nodding your head.

[00:13:29] Anjay: That's Vinny Provenzano. He was a phone clerk for Leo's brokerage firm, Dellsher Securities. You heard me right: the head of the exchange owned a brokerage firm that traded on the floor of the exchange. I liken this to the commissioner of the NBA also owning a team, and a casino, where he bets on basketball games. I don't know if it's because they thought nobody was paying attention. or nobody understood what this place was. But flagrant conflicts of interest like this, they were everywhere.

Vinny got to the floor about three years before the FBI showed up, and he agreed with Bill Crawford about the targets of this investigation.

[00:14:15] Vinny Provenzano: I think it was a witch hunt. I think they were going after my boss, Leo Melamed and Jack Sander, and trying to get the guys up top.

[00:14:35] Leo Melamed: My travels have taken me all everywhere except Poland or Russia in a, in a way, uh, our world was destroyed. The world of my parents and, uh, all my family and everybody, they, they were put ovens and burned.

[00:14:48] Anjay: Leo Melamed is a childhood Holocaust survivor and an embodiment of the immigrant success story. While in law school, he saw a job posting for a clerk.

[00:14:59] Leo Melamed: So I was looking for a job clerking. A friend of mine showed me a job for a, a runner from this law firm called Merrill Lynch. Pierce Spinner, and Smith. Thought when a name like that had to be a law firm. I went and applied and. I ended up on the Chicago Mercantile Exchange.

[00:15:14] Anjay: He had no idea what the place was, but he took the job and from that day on, he was hooked.

[00:15:22] Leo Melamed: Once I got there, I saw this crazy world of the Chicago Mercantile Exchange with people running around and shouting. I mean, it's got to attract you. It, it was exciting. It was different as anything I had ever seen in my life.

[00:15:36] Anjay: He loved the unbridled capitalism of the exchange. And in 1968, through hard work and a series of lucky breaks, he became the youngest chairman of the board ever at the Merc.

[00:15:49] Leo Melamed: We innovate because of competition. We innovate not just because we can create something, but because we can do better than the next guy.

[00:16:02] Anjay: So the Merck added a few new commodities pits, and then Leo had an epiphany.

[00:16:08] Leo Melamed: You can't invent another cow. You can't invent another soybean. Those are already done.

[00:16:15] Anjay: The Merc was running out of agricultural products to trade.

Then in 1971, President Nixon created a new opportunity. He pulled the US out of something called the Bretton Woods Agreement. Bretton Woods tied all foreign currencies to the US dollar. When Nixon pulled out, currencies started fluctuating in comparison to the dollar. It can't be overstated how huge of an impact Nixon's decision would have on the future of the global economy.

Most people didn't really understand the long-term ramifications of that decision, but Leo is not most people.

[00:17:02] Leo Melamed: I said to myself, you know, maybe what was being done in agriculture could be done in financial things instead of agriculture. Maybe futures do apply to finance.

[00:17:14] Anjay: This idea that you can create futures on financial products and not just agricultural ones. That idea changed finance, but not right away. At first, nobody really understood it. Not even the other exchange leaders.

[00:17:34] Leo Melamed: They said to me, wait a minute, that's finance. Yeah. I said, you got that right. Wait a minute, finance, that's for New York. That's Wall Street. Besides, that's not in future's. Futures, you know, are agriculture.

[00:17:52] Anjay: The board apparently laughed him out of the room and without their approval, he couldn't move forward with any plans.

[00:18:02] Leo Melamed: I knew a guy, his name was Milton Friedman, the Nobel Laureate in economics. He wasn't yet a Nobel laureate, and I said to him, please, one thing, don't laugh. I said, I have this idea. For a futures market in foreign exchange. And I said, I want to know if you think that's ridiculous. Or you think it could work?

He said, it's a wonderful idea. You must do it. I said, no, no, no. You don't understand. I'm dealing with people who will not believe me. You gotta put it in writing. Oh, he said, you want me to write a feasibility study?

I didn't know what a feasibility study was, but I said, yes.

He said to me, this is the funny part. He says, well, a feasibility study, you know, um, it's a lot of work. I'm a capitalist.

I said, how much? He said, $7,500. I said, deal. The Merc today is worth somewhere in the neighborhood. $20 to $22 billion, $7,500 was the basis of that trade. That's a pretty good trade. I gotta tell you.

[00:19:28] Anjay: That speech was made a long time ago.

At the time of this recording, the Merc is actually worth about 67 billion, and it's the biggest exchange of any kind. Anywhere in the world.

[00:19:46] Leo Melamed: So he wrote the paper and I used that paper to go around, literally the world waving my hand with that paper. And that's why the IMM, the International Monetary Market was born.

[00:20:02] Anjay: To be clear, banks already traded currencies with one another in private transactions. So while his idea was interesting, the success of launching foreign currency futures was anyone's guess until the opening bell rang in those new pits.

[00:20:20] Leo Melamed: By God. Uh, it worked.

[00:20:27] Anjay: The IMM launched in 1972. It was such a success that the Merc soon added interest rate features. Then gold, then silver. The Board of Trade landed futures on treasury bonds, and by 1977, those bond futures were the most traded futures product on the planet.

[00:20:50] Leo Melamed: The sky was the limit. I was like a kid in a candy store. My God. What's available in finance!

[00:20:56] Anjay: Is it me or does Leo sound like a finance version of Willy Wonka gushing about his chocolate factory? The growth was so rapid the Merc had nowhere to put new pits. But that didn't stop Leo. He had another idea for a product, a stock index futures pit. And although stocks were New York's bread and butter, Chicago was in pole position to land the contract. This pit was gonna be a big deal.

Leo just needed one more thing before he could close the deal, so he went to see Almighty Mayor Daley to lobby for a bigger building.

[00:21:37] Leo Melamed: He listened intently and he said, wait. He says, just tell me this. I'm gonna do his best accent. I know. What will it do for Chicago? What will it do for Chicago? I said, Mr. Mayor, if I can build this building and expand the IMM to list stock index futures, I am going to move the financial center of gravity out of New York at least 10 feet. He said, I like that. Build the building.

[00:22:17] Anjay: Leo got the building. Chicago got the S&P 500 stock index features, and in the following years it got many other big stock index futures as well.

[00:22:28] Leo Melamed: We moved it more than 10 feet. You'll agree, but I was right. And. The mayor was right. It goes to show you great man. Understood the vision I had understood what financial instruments could do for Chicago.

[00:22:46] Anjay: By the mid 1980s, contracts traded at the Chicago Markets were valued at more than 60 times those traded at the New York Stock Exchange.

And four out of every five futures contracts were now financial ones rather than agricultural. The Merc alone expanded from roughly 500 seats to 3000. More seats meant more jobs, meant more opportunities for guys like Ray Pace, T-Bun, Tim, and Stretch. It was a gold rush. And it was largely due to the efforts of Leo Melamed, who would eventually be known as the Godfather of Financial Futures. Again, here's Leo's clerk, Vinny Provenzano.

[00:23:36] Leo Melamed: Yeah. The godfather of, uh, foreign exchange. He, uh, he created the products. He did. And, uh, one time I asked him, Leo, how you gonna do this? And he pointed at all the boards and he said, I did all this, didn't I?

[00:23:49] Anjay: While Leo's skill at financial innovation was obvious to all, he possessed another great talent. One that is equally important to the evolution of Chicago's exchanges.

[00:24:02] Vinny Provenzano: You go into Leo's office, there's a picture of every dignitary that ever came on the floor. I mean, he needs more walls. He needs to put stuff on the ceiling.

[00:24:09] Tim: Oh, he was a trader, but he was a better politician.

[00:24:12] Vinny Provenzano: He was exactly. I mean, the politician money kept fueling his trading.

[00:24:17] Anjay: So what does trading even have to do with politics? The surprising answer after the break.

[00:24:36] Brian Lamb: As a businessman, do you have to watch Washington very closely?

[00:24:39] Leo Melamed: Every minute of the day. Uh, they're always doing something and everything they do generally, uh, will affect the market movements. Of course, uh, it affects, uh, uh, everything but the weather, uh, they, they can't do anything about that. But they, they do a lot of things that affect us, whether it's taxation or taxing certain industries or whether it's uh, uh, trade negotiated items.

But the effect is there and it's dramatic and it's upon us all the time. So we watch Washington all the time.

[00:25:08] Anjay: Leo left out another little thing that politicians do that affect the exchanges. It's called. Regulation.

The Merc and Board started out, as we know, as agricultural markets. So they were regulated by the US Department of Agriculture or USDA. But when the IMM took off and 80% of the products traded on Chicago's exchanges were financial futures, being regulated by the Department of Agriculture stopped making sense.

Many in Washington pushed for regulation by the SEC, but that didn't happen. And that's because Leo and the other exchange heads fought hard against it. But something had to change. So Congress created the Commodity Futures Trading Commission, or the CFTC in 1974. It was an independent federal regulatory agency.

To fund the CFTC, Senator Bob Dole suggested a tax on the exchanges. But Leo came up with his own idea, let brokers create an industry group. They'd each pay dues, and those dues would fund the CFTC. Basically, the people being policed would fund the police. And you can guess how that turned out.

[00:26:34] David Greising: Really, the CFTC was just not up to this job. Turned out the CFTC didn't have the resources, didn't have the expertise.

[00:26:44] Anjay: That's former Chicago Sun Times journalists and author David Greasing. He covered the case when it broke, and later he co-authored a book called—you guessed it—Brokers Bagmen, and Moles.

As I dove into the story, I often called David to help me understand what I was learning.

[00:27:04] David Greising: I think the exchanges knew that the CFTC was kind of eating out of their hands and that really they could make their own rules enforce or choose not to enforce their own rules. And they really didn't have to worry about a, a regulatory body interfering with what they were doing.

[00:27:21] Anjay: If brokers or locals were caught doing something that violated exchange rules, they faced an internal disciplinary board populated by traders in their pit called the PIT committee.

Only the most egregious actions got more than a slap on the wrist and maybe a fine. This is the definition of the fox guarding the hen house. It probably goes without saying that Leo, his counterparts at the Board of Trade and most of the traders, they love this system. And they spent a lot of time in Washington lobbying politicians to maintain it.

It didn't hurt that the head of the House Ways and Means Committee, the group that controls taxation and many other financial matters was Leo's old pal, Congressman Dan Rostenkowski. Here's Leo talking about him in an interview from 1986.

[00:28:15] Leo Melamed: We surely thank God that, uh, Danny Rostenkowski, uh, is our friend and is from Chicago, but, uh, he can't, he can't really go to bat for us all the time.

He does. He is our, uh, a good friend and as a matter of fact, uh, uh, we like him a lot.

[00:28:31] Anjay: It's easy to see why. When President Reagan cut corporate tax rates, Rostenkowski made sure that his friends at the Merc and the Board of Trade were treated as corporations, thereby lowering their tax rates.

Unfortunately, for Leo, all of the backroom deals and palm greasing eventually caught up with his favorite politician.

[00:28:55] News: Dan Rostenkowski, a powerhouse with enormous influence as chairman of the House weighs and means committee indicted on 17 felony charges. Eight term, Illinois Democrat was charged with 17 felony counts.

It charges him with embezzling half a million dollars, mail fraud, wire fraud, aiding and abetting a crime.

[00:29:16] Anjay: Fortunately for Leo, when one corrupt Congressman falls, usually another one pops up to take his place. Here's David Greising again.

[00:29:28] David Greising: The amount of influence that they had over Congress was palpable.

If you went down to the Annual Futures Industry Association event in Boca Raton, Florida at the Boca Raton Hotel and Club the year before the investigation broke, there were I think more than 15 members of Congress, including Marty Russo, who was actually on the Agriculture Committee and was a protege of Rostenkowski. They were regular fixtures at this all-expenses paid trip.

[00:30:03] Anjay: David outlines all of this in shocking detail in his book. But here's a cheat sheet. The exchanges applied strong pressure to all their members, aka, the traders to contribute to the political action committees or PACs of both parties. And then the heads of the exchanges would go around and find creative, but legal, ways to put all those campaign contributions into the pockets of the politicians who helped them maintain self-regulation and avoid taxes. The heads of the exchanges were true maestros.

[00:30:43] David Greising: They would just puppet the, you know, the Free Markets for Free Men slogan of the exchanges. They would talk about the importance of defending this bastion of entrepreneurialism and, and capitalism, et cetera, et cetera.

They really drank the Kool-Aid of the industry and weren't really of a mind to, uh, come down hard on an industry that really was, provided them a lot of political support and, uh, really political alliances as well.

[00:31:12] Anjay: One political alliance in particular fueled rumors that the FBI was really targeting Leo in this investigation.

[00:31:22] David Greising: There was this persistent rumor that Clayton Yeutter, who is the agriculture secretary, had a connection with Leo, might be leaking information.

[00:31:31] Anjay: Before Clayton Yeutter was the Secretary of Agriculture, he was the president and CEO of the Merc. So his close ties to the Merc led to speculation that he was leaking crop reports to Leo so that Leo could profit off of this inside information. That sounds familiar. Where have I heard that before?

[00:31:52] Trading Places: If, uh, Mr. Beaks does what we paid him to do, we should have a very happy new year indeed.

[00:32:02] Anjay: That was another scene from Trading Places. If you haven't seen it, the story goes that the Duke Brothers were getting leaked crop reports so that they could profit on frozen orange juice futures. The movie came out in 1983, so it couldn't be about Leo. But this rumor that he was trading on inside information was too juicy not to look into. Luckily for me, I had a 16 year employee of Leo's at my disposal, and he could tell me if Leo was raking in millions by trading on insider information. So I went back to Vinny Provenzano and asked him how Leo did as a trader.

[00:32:44] Vinny Provenzano: He was probably one of the worst traders I ever saw.

He, uh, lost a lot of money. He was very emotional and, you know, in the office on days where, you know, Leo made money, he'd be, you know, do a conga lined down the aisle. Leo, great job today, Leo. Great job today. On days when he didn't, he'd never leave his office.

[00:33:07] Anjay: Even the worst trader in the world can make money with inside information.

So it's very unlikely that Leo was trading commodities futures based on leaked crop reports. And also, wow. Vinny estimated that Leo lost millions over the years speculating on the market. That he would take his share of profits from his brokerage firm and the significant fees he earned from speaking about futures markets and just plain lost it betting on the market. Several other people backed up the assertion that Leo was not a good traitor, but was he corrupt?

[00:33:42] David Greising: I know Leo Melamed pretty well. I've known him over many, many years. He doesn't strike me as a corrupt person. And I've known over the years when you are a journalist in Chicago for your whole career, you've run across a fair number of corrupt people, uh, in business and in government.

[00:34:00] Anjay: And then I went back to Chicago Tribune reporter Bill Crawford.

[00:34:04] Bill Crawford: Leo had his quirks. Leo had his demanding ways. Leo was Leo and I could be dead wrong. I found him to be a straight shooter and I'm sure he'd been a rule or two. But for Leo to sit down in a very organized behind the scenes kind of way and, and attempt to defraud somebody to his game. I didn't see it that way. Now, there are others over there.

[00:34:29] Anjay: That were on, on the exchange level or?

[00:34:32] Bill Crawford: You betcha.

[00:34:34] Anjay: Do you think there was anything, any direct attempts made to. Go after either Leo Melamed, Jack Sandner, or Cash Mahlmann?

Jack Sandner was the longtime number two at the Merc and Cash Mahlmann was the head of the Board of Trade.

Well, his name was actually Karsten Mahlmann. But Cash sounds a lot cooler.

[00:34:56] Bill Crawford: In my view. There was utterly no effort whatsoever at any level. And believe me, I would've heard about it and I had all kinds of sources over there. But at no time, any effort by federal authorities to go after either one of those three.

[00:35:17] Anjay: Like Leo, both Jack Sandner and Cash Mahlmann owned brokerage firms. Unlike Leo's firm, Jack and Cash's companies were embroiled in scandals that ranged from hiring of salesmen, formerly convicted of securities fraud to improper transfers of customers funds. The latter of which forced Mahlmann to resign as the chairman of the Board of Trade.

So it was pretty disappointing that no attempt was made to investigate those two. So far, we've learned a lot about the tactics the FBI we're using in the pit to go after crooked brokers. But the 30,000 foot view of this investigation was still pretty murky. I expressed that frustration to Bill Crawford.

The thing that I just can't stop thinking about is that from everything I've read about starting an investigation of this magnitude, you, you need to have clear targets of who you are taking down that need to be material and a fair amount of evidence against them, not just, oh, we think there's a bunch of small time traders over there cheating some customers here and there.

[00:36:27] Bill Crawford: Oh, no. I mean, I mean, I, I, I agree. I agree. It, it leaves me puzzled.

[00:36:36] Anjay: Back in January of 89, Bill kept chasing all of these theories. He didn't get much time to investigate though, because the story was moving fast. And by the end of the week, everyone thought they had the case figured out.

[00:36:51] David Greising: The first undercover agent went through the training program at Archer Daniels Midland, they brought a complaint to the FBI.

[00:37:02] Anjay: Archer Daniels Midland, or ADM.

They are a huge food processing company located in central Illinois. Sounds boring until you realize that their CEO was one of the more powerful people in the world and that they were embroiled in a scandal so big. It got turned into a Matt Damon movie.

[00:37:26] The Informant: It's not just lysine, it's, it's citric, it's gluconate. There was a guy who left the company cuz he wouldn't do it. He was forced out. The gluconate guy, he's out of a job.

[00:37:34] Anjay: That's coming up, on the next episode of Brokers, Bagmen, and Moles.

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.

Today, I'll leave you with a lovely PSA the FBI produced in 2012. It's about snitching on insider trading, and it stars none other than Gordon Gekko himself. Seriously. It's on YouTube.

[00:39:52] Gordan Gekko: Hello, I'm Michael Douglas. In the movie Wall Street, I played Gordon Gekko, a greedy corporate executive who cheated a prophet while innocent investors lost their savings.

The movie was fiction. But the problem is real. Our economy is increasingly dependent on the success and integrity of the financial markets. If a deal looks too good to be true, it probably is. For more information on how you can help identify securities fraud, order report, insider trading, contact your local FBI office or submit a tip online@www.fbi.gov.

Thank you.