September 14, 1972
Page 30702
MANIPULATION OF PRICE OF POTATO FUTURES ON CHICAGO MERCANTILE EXCHANGE
Mr. MUSKIE. Mr. President, earlier this week the Commodity Exchange Authority issued a complaint against 17 individuals and companies, charging them with manipulating the price of potato futures on the Chicago Mercantile Exchange. These charges, if true as alleged, provide the strongest possible testimony on behalf of my bill, S. 1947, to impose an immediate ban on the trading of potato futures on commodity exchanges.
For many years, the great majority of Maine's potato farmers have opposed futures trading because of its effect on prices. They have claimed, in part, that the mechanics of futures trading enables a handful of speculators – who are interested in a quick profit rather than in the maintenance of a stable and healthy farm economy – to manipulate the price of the potato crop.
The alleged action of the 17 individuals and companies to depress the price of potato futures confirms the worst suspicions of the farmers. It is powerful evidence that a prohibition of further trading should be enacted as soon as possible.
A companion measure to S. 1947 has been favorably reported out of the House Agriculture Committee, but has not yet been acted upon by the Rules Committee. I am hopeful that this unfortunate episode will encourage both the House and the Senate Agriculture Committee to give immediate attention to this measure.
Mr. President, I ask unanimous consent that an article entitled "Farm Agency Charges Groups Tried to Rig Potato Futures Prices," published in the Wall Street Journal of September 12, be printed in the RECORD. The article describes in detail the serious violations of law which are charged in the Commodity Exchange Authority's complaint.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
FARM AGENCY CHARGES GROUPS TRIED TO RIG POTATO FUTURES PRICES
WASHINGTON. – The Commodity Exchange Authority charged 17 individuals and companies with having participated in opposing "power plays" to rig the price of potato futures on the Chicago Mercantile Exchange. Among those named in a complaint issued by the Agriculture Department agency were Modie J. Spiegel, retired chairman of the Chicago-based Spiegel Inc., mail order concern, and Jack R. Simplot, of Boise, Idaho, owner of one of the nation's largest potato processing operations.
According to the charges, Mr. Spiegel was part of a "combination, conspiracy, agreement, arrangement or understanding" to push up the price of the May 1971 Idaho potato future. Mr. Simplot, on the other hand, "was acting with the intent of depressing or preventing a rise" in the market price of the same contract, the complaint says.
The CEA complaint doesn't represent a finding by the Agriculture Department that the charges are true. Nevertheless, the case, one of the largest of its type in recent years, could jar loose a pending House bill that would do away with potato futures trading altogether. The legislation cleared the House Agriculture Committee earlier this year, but has been held up by the Rules Committee. During hearings on the bill, producer witnesses testifying for the ban cited alleged past manipulation of potato futures markets as one way such trading hurts farmers.
J. R. Simplot Co., Boise, and Simplot Eastern Idaho Produce Co., Blackfoot, Idaho, both owned by Mr. Simplot, were the only other respondents charged in the complaint with having attempted to depress the potato futures price or prevent it from rising.
"SPECULATIVE TRADING"
In identifying Mr. Spiegel, the complaint said that he had "engaged in speculative trading . . . for his own account." Spiegel Inc. isn't named as a defendant nor is there any allegation of wrong- doing by the mail order company, a unit of Beneficial Corp., Wilmington, Del.
Neither Mr. Spiegel nor Mr. Simplot could be reached for comment. In Boise, a spokesman for Simplot Co. declined comment, as the company hasn't yet seen either press reports or the complaint.
Others charged in the complaint were: Edward Spiegel of Pasco, Wash., and Universal Land- Snake River, a potato-growing enterprise in which Edward Spiegel is a partner and for which he directs potato futures trading on the Chicago Mercantile Exchange. Edward Spiegel is the son of Modie Spiegel.
Peter J. Taggares, Othello, Wash., and two of his companies, P. J. Taggares Co. and Chef-Reddy Foods.
Kenneth L. Ramm, a potato producer in the Othello area as well as a potato futures "speculator" for his own account.
Idaho Potato Packers Corp., Bronx, N.Y., and an affiliated concern, Idaho Potato Packers of Idaho Inc., Blackfoot, Idaho, and their two owners, Robert H. Abend and Harold Abend, his brother.
James Minor. San Jacinto, Calif., and two companies owned by him, San Jacinto Packing Co. and Agri-Empire Inc., both also located in San Jacinto.
As described by the complaint, Messrs. Taggares, Ramm, Minor, the two Spiegels and the two Abends, "entered into a combination, conspiracy, agreement, arrangement or understanding among themselves" to purchase "a substantial amount" of long contracts of the May 1971 Idaho potato future. They also agreed to "establish, maintain and keep open increasingly large long positions . . . sufficient to enable them to cause an arbitrary and artificial rise in the price of such future," the complaint states.
In commodity trading, a "long" contract is a commitment to buy the commodity in question, usually with the expectation that the price will rise from the transaction price. A "short" contract is a commitment to sell, usually in anticipation that the price will fall.
In addition to their own purchases, the respondents were "to solicit or influence various other individuals" to join them in buying long on the May 1971 potato contract and to increase such positions at later dates, the complaint alleges.
On May 10, 1971, expiration date of the May 1971 Idaho potato contract, the open interest on the Chicago Mercantile Exchange amounted to 2,034 contracts, each representing 50,000 pounds of Idaho Russet Burbank potatoes. Of the total, the "long respondents held, controlled or influenced" 1,820 contracts, or approximately 90% of the total open interest, the complaint says. Open interest refers to contracts that aren't closed.
GRADUAL INCREASE
Modie Spiegel, for example, beginning April 21, 1971, gradually increased his long position to 150 open contracts, the maximum permissible speculative limit, by May 4, according to the complaint. Acting together, it says, Modie Spiegel and Edward Spiegel further "solicited or influenced at least three other individuals" to take an aggregate position of approximately 112 open contracts by the May 10 close of trading.
In addition to the buying plan, the "longs" allegedly "induced many of the short traders" not to pack and ship actual carlots of potatoes to satisfy their short commitments. They managed this, the complaint says, by "offering the 'shorts' actual carlots of potatoes that were to be 'retendered,' or redelivered to the long respondents in settlement" of the shorts' commitments. Subsequently, however, the offer was withdrawn by the respondents "despite the short traders' reliance thereon," the complaint states.
According to the complaint, Mr. Simplot's alleged role didn't begin until May 5, 1971, when he began to increase the short position of Simplot Eastern Idaho Produce Co. from the existing level of approximately 260 "sell" contracts. By May 7, the Simplot position amounted to 783 open "sell" contracts and remained at that level through the May 10 close of trading.
In a letter to Sen. Frank Church (D. Idaho) earlier this year, Alex Caldwell, CEA administrator, described the potato actions as "an attempted power play on both sides of the market." Mr. Caldwell also credited the Chicago Mercantile Exchange with having taken "all possible steps to remedy the situation at the time."
James Minor, owner of San Jacinto Packing Co. and Agri-Empire Inc., was the only one of those named who could be reached for comment. He said: "The charges have no foundation as far as we're concerned. The record is quite clear. When we were investigated by the commodity exchange, we showed them all of our records and it showed we were well within the limits at all times."
Mr. Minor maintained that he and his two companies are "absolutely innocent" of the charges. "We intend to fight the case," he added.