Bucketing Beans

The U.S. attorney waited until the Chicago Board of Trade had ended its trading for the week. Then Samuel Skinner dropped a bombshell on the world's largest commodity futures exchange. He announced four indictments ranging from mail fraud to income tax violations against one customer, one solicitor (a title analogous to stockbroker) and seven traders.

The most serious charges were leveled against Richard C. Groover, Edward A. Arnold and Robert N. Meyer Jr.--all traders in soybeans, the protein-rich legumes that have brought great wealth to farmers and speculators. The three traders were accused of the long-forbidden practice of "bucketing." A bucketing broker takes a customer's order to buy or sell soybeans or other commodities but, instead of making the transaction on the open market, the trader arranges a private rigged deal that can bring him an illegal profit. If proved guilty, Groover, the alleged ringleader, could face up to 128 years in prison and a fine of more than $4 million. Three other soybean traders--Sam H. LaMantia, Ralph J. Hemminger and Leo Sussman--were indicted for violating federal commodity exchange regulations. Federal investigators say LaMantia set up fake sales in order to accumulate supposed losses that he used to reduce his income tax bills.

Violent Swings. The implications of the indictments go beyond soybean trading. They represent the first results of a 15-month investigation into U.S. commodity trading by the Department of Justice, the Internal Revenue Service, U.S. postal inspectors and the federal Commodities Futures Trading Commission. Skinner warned that more indictments involving other commodity markets can be expected.

The soybean charges also point up one of the problems of the commodities exchanges: the same broker may both represent customers and trade for his own account. Though this duality is thought to dampen violent swings in price--brokers may have to buy or sell when no one else will--it opens opportunities for abuse. Says Skinner: "Whenever you have a situation where a broker can trade for himself as well as be arbiter for both sides, you are going to have problems."

Some Chicago commodity traders expressed relief that the U.S. attorney had now brought his case into the open. Warren Lebeck, president of the Board of Trade, claimed that his investigators had started digging into possible misconduct by traders even before the feds moved in and that the board had already taken disciplinary action in one case. But if Skinner's charges prove to be true, the board's measures appear to have been just a drop in the bucket.

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