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on last December, what can you tell us about a normal season such as we expect to have in the future?

Mr. DUVEL. I thought I had those figures here. / I had the figures yesterday and I thought that I had them right here this morning. As I remember, it is about 3 years out of 8. Normally, the difference between December and May wheat, or cash wheat and the distant future is the carrying charge of the wheat. In other words, December wheat is lower than May, and September is lower than December, so that you have, during the month of delivery, cash wheat at a price which is a normal carrying charge below the distant future. That has not been true recently. Has not been for the past year with both wheat and corn, the cash grain has been above the futures.

Mr. ANDRESEN. How much lower is July and September futures now than the May futures?

Mr. DUVEL. I cannot give you those figures, off-hand. Maybe somebody present can..

Mr. GEORGE H. DAVIS. About 7 cents.

Mr. COUGHLIN. Between 6 and 7 yesterday; it is down to about 4 at this time.

Mr. COFFEE. Mr. Chairman, I would like to ask what effect this bill would have if it were in operation as to changing those prices, or changing conditions, I mean.

Mr. DuVEL. I do not think that it would have any.

Mr. COFFEE. It would not have any effect; there would not be any difference?

Mr. DUVEL. I do not think that it would have any. That is my opinion. That provision of the bill is in line with some of the provisions that we have now on some of the commodity exchanges where they stop trading before the end of the month. That is frequently done, so to take care of other commodities, this bill provides for a limit, but the Secretary cannot go beyond 15 days. It is not material from our standpoint whether it is 15 days or 10 days; but we do think that there should be provision for some limitation.

Well, that is all of that point. If Mr. Mehl is here now, I think that I will let him take it up.

The CHAIRMAN. We will hear Mr. Mehl.



Mr. MEHL. My name is J. M. Mehl, Assistant Chief of the Grain Futures Administration. Mr. ANDERSEN. How long have you been with the Administration?

Mr. MEHL. Since 1924. I am also the representative of the Secretary of Agriculture on the Grain Exchange Code Authority of which Mr. George H. Davis is the esteemed chairman.

I was happy to learn from the testimony of Mr. Davis yesterday that he thinks so much of this bill and of the code that he is willing to have them joined in a sort of a trial marriage, and I just want the committee to know that we have already been “engaged ", so to speak, for about a year. I sit on the Grain Exchange Code Authority and our several Grain Exchange supervisors sit in the meetings of the business conduct committees of the exchanges.

tont of floor attention in ses and intas requested...

At yesterday's session, Dr. Duvel was requested to bring with him today a list of all the cases and instances, with names, which had come to our attention in the past, involving irregularities on the part of floor brokers and commission firms in connection with customers' orders.

Now, we have a list, a memoranda list, of cases from 1929 to 1931, that were noted for further investigation and possible handling in the event that the case which was started at that time, known as the “ Massey and Reedy case”, was successfully terminated and it was found we had authority to deal with this kind of cases under the present act. The working papers of the accountants in reference to those cases are still in Chicago and we have here just the roughest kind of a memorandum.

I would like to present at this point, a memorandum which Dr. Duvel submitted to the Solicitor for the Department last evening in reference to the right of the Grain Futures Administration to disclose the names and the individual business transactions of persons who are under investigation but who have not actually been found guilty of violating our act. i

The CHAIRMAN. What was the conclusion? I do not think the committee would care particularly about having the opinion read. Does he think they should be or should not be? Unless some one wants to hear the opinion read, I do not think it is necessary.

Mr. MEHL. His conclusion was that the Grain Futures Administration was not justified, in view of the specific prohibition in the present grain futures, in disclosing the names of individuals and names of customers.

The CHAIRMAN. Well, is there any reason that you should not give an estimate as to the number? Mr. MEHL. No. I will be glad to do that.

The CHAIRMAN. I do not think the particular name of anyone would be necessary. I do not think the committee would want to do any of them any injustice. I do not care to have their names. Mr. ANDRESEN. You might put that opinion in the record.

The CHAIRMAN. We will be glad to have the opinion printed in the record.

Mr. MEHL. I will offer, then, Mr. Duvel's letter to the Solicitor of February 7 and the Solicitor's reply. (The documents referred to are as follows:)


Washington, D. C., February 9, 1935.


DEAR MR. THOMAS: At a public hearing on H. R. 3009 before the House Committee on Agriculture this morning I was requested by certain members of the committee to have prepared and present at the session tomorrow a list of cases and instances, with names, which have come to our attention involving irregularities on the part of floor brokers in executing orders and involving such practices as cross-trading, bucketing of customers' orders, etc., aimed to be prevented by the provisions of H. R. 3009.

You will recall that a test case was instituted by the Secretary of Agriculture on March 12, 1930, against three members of the Chicago Board of Trade. This was what is known as the “ Massey-Reddy case”, dockets 2 and 3, and was intended to determine whether the practices complained of could be dealt with

under the present Grain Futures Act as a form of price manipulation. The Commission found that while the practices involved and as indicated by the evidence might be detrimental to customers and might even amount to fraud, they could not be considered as constituting manipulation of the market price of grain within the meaning of the Grain Futures Act.

At the time the case was instituted, our office had a list of about 20 brokers and commission firms who, on the basis of preliminary examination, seemed to be engaged in the same sort of practices that were involved in the MasseyReddy case. It is this list which would be submitted to the House Committee on Agriculture tomorrow. I desire your opinion as to whether or not, in the face of the prohibitions contained in section 8 of the Grain Futures Act, we may be permitted to submit this list. Very truly yours,

J. W. T. DUVEL, Chief.


OFFICE OF THE SOLICITOR, Washington, D. C., February 8, 1935.


DEAR MR. DUVEL : Your memorandum of February 7 is received asking to be advised whether you may lawfully comply with the request of several members of the House Committee on Agriculture that you submit a list of the names of persons who seemed to have violated the Grain Futures Act according to preliminary investigations made under your direction several years ago at about the time of the proceedings in the Massey-Reddy cases, dockets 2 and 3.

Authority is conferred upon the Secretary of Agriculture by section 8 of the Grain Futures Act (42 Stat. 998, 7 U. S. C. 1) to publish the results of your investigation.

" * * * except data and information which would separately disclose the business transactions of any person and trade secrets or names of customers : Provided, That nothing in this section shall be construed to prohibit the Secretary of Agriculture from making or issuing such reports as he may deem necessary relative to the conduct of any board of trade or of the transactions of any person found guilty of violating the provisions of this act: Provided further, That the Secretary of Agriculture in any report may include the facts as to any actual transaction.”

In view of the decision of the Grain Futures Commission that the transaction's involved in the Massey-Reddy case were not in violation of the act, no proceedings were instituted against the other persons above referred to, so that obviously they have not been found guilty of having violated the act. Therefore, in view of the above-quoted provision of the act, it is my opinion that you do not have authority to disclose the names of the individuals concerned. There could, however, be no objection to your giving the Committee information as to the practices involved, and the extent of those practices. Yours very truly,

SETH THOMAS, Solicitor. Mr. HOPE. Is there any reason why you could not give us that opinion, without disclosing the names? That is, the opinion of the solicitor as to your right to do so ?

Mr. MEHL. Well, I think that I can meet what the members of the committee had in mind when they made the request.

I presume that the purpose of the request was to have presented just a little more definite information than has heretofore been given the committee, showing the necessity for those provisions of the bill which relate especially to cheating of customers, cross-trading, and that sort of thing.

I believe it was the purpose also to inquire as to which of these cases, if any, had been submitted to the exchange officials for action under their rules.

Now, I assume this was the purpose of the gentlemen who made the request; that it was not the purpose to put the chief of the Grain Futures Administration in the position of violating his own law, and that it is not your desire to drag into the record the names of a lot of people who had been under suspicion. I can give you the information Mr. TOBEY. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Tobey. Mr. TOBEY. You remember, the other day, Mr. Mehl, you were here when I asked Mr. Coughlin if he would be good enough to file with me a list of the offenses charged and the convictions made of the members of the Board of Trade, from 1929 up to date.

Mr. MEHL. Yes.

Mr. TOBEY. He did file that list with me yesterday. Of course, I would be the last man that would want those names made public. They are confidential here. The same thing would apply there. But, you have a list, and I would like to compare that list that you have with the one I have here. And the reason is obvious. Here are 52 names of members who have either been suspended or expelled from the Board of Trade by virtue of breach of their rules. That being so, you bring in a list of 14. I am particularly desirous of knowing whether the 14 names which came to your attention are on this list here, because if they are on this list, it would tend to show that the Board of Trade, in my judgment, is taking measures to meet what is going on; but if they are not on this list, those 14, it is obvious that the Board of Trade does not know all that is taking place, has not been wise enough to discover all of the wrong practices that are going on, or having discovered them, has taken no cognizance thereof.

Mr. MEHL. I think it is admitted that the exchange will have occasion to discipline or suspend under its rules many persons against whom we would have no occasion to proceed under our act.

Mr. TOBEY. True; but if the names you have there are the names of those who are beating the sales, as was suggested here, or are guilty of corrupt practices, and that is one thing that no notice was taken of by the board of trade, obviously they are not living up to the code, or to ethical standards, so far as protecting their organization and the public where the functions of the exchange are concerned.

Mr. MEHL. In 1929 our auditors and accountants in Chicago, in connection with their other work, had observed what they thought were practices of bucketing and the taking of customers' orders by brokers into their own accounts. They communicated from time to time to us their observations in this respect, and one of the first cases occurred on September 23, 1929, or rather, that is the date of the preliminary report.

Now, this case involved the operations of 2 floor brokers and 1 clearing member. They were involved in bucketing and cross-trading. That case was brought to a hearing before the Commission consisting of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General, on a charge of manipulation. I do not need to describe that case, because it is a matter of record in G. F. A. Dockets 2 and 3.

The names of the parties and all details concerning the transactions may be obtained from the record itself.

The Commission in that case found that although the practice complained of, and as shown by the evidence, might be detrimental to customers and might even amount to fraud, the practices by brokers of taking customers' orders into their own accounts, at prices fixed and determined by themselves so as to give such brokers an independent profit, did not constitute manipulation of grain prices within the meaning of the Grain Futures Act.

It was a test case to determine that question.

In the report of our accountant, who first brought that case to our attention, he said that in his investigations of that case his suspicions had become aroused as regards the practices of pit brokers generally in bucketing customers' orders and concealing that fact by the device of cross-trading. He said he had examined the records of every clearing firm on the Chicago Board of Trade, covering 1 day's transactions. This included more than 100 firms. I am quoting now from his report:

Many questionable transactions were disclosed and memoranda made for future follow-ups. Particularly it was found that the pernicious custom of scalping trades in between customers' orders is quite prevalent on the part of a number of floor brokers who execute the customers' orders for the clearing firm. It was found also that many firms make cross-trades with themselves, that is to say they take both the bought and the sold sides of the same transaction.

Under date of September 24, 1929, a report was received covering a similar kind of a case involving another Chicago floor broker who appeared to be taking customers' orders into his own account. On October 21, 1929, we received still another communication relating to the practice of bucketing customers' orders and cross-trading. This involved two other commission firms and three additional floor brokers. The auditor in his report said: At the office of

& Co. in the

Building, where I had previously found questionable transactions, we found that two floor brokers who cleared trades through this firm had repeatedly and systematically traded for their own accounts, against the accounts of customers, by bucketing the orders into their own accounts and thereby realizing a profit by means of the accommodation cross-trade. * * * At

Co. I decided to look into a usually unexplored territory. Our activities, as you know, have usually been devoted to wheat and corn. In this case I decided to look into transactions in oats and found that practically all of their trades in oats were executed by one broker who operates almost exclusively for this firm. By following up clues as to methods discovered in other examinations I found that this man systematically and frequently trades against customers' orders which are entrusted to him for execution. The result is that he has a nice profit in his own account day after day. * * *

In this firm I also found that another of their floor brokers * * * frequently trades for himself and on several occasions took the other end of customers' orders through the very clever ruse of giving to a fellow floor broker trading for the same concern the other end of the trade with a definite arrangement that the opposite side of each trade was to be put down to his own account; result, a nice profit and a sure profit in his own personal account.

Mr. BEAM. That is in reference to 1921 ?
Mr. MEHL. 1929. I am still quoting from the auditor's report:

In connection with his trades I found a most extraordinary case in which transactions were deliberately “framed” and arranged in the office after regular hours and after the board was closed, wherein a customer's order was filled at prices out of the official range by deliberately taking one end of the order into the broker's own account.

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