Commission looks into cattle futures for suspected insider trading

WASHINGTON (AP) – Market regulators are investigating whether commodities traders profited last month from advance knowledge of the first U.S. case of mad cow disease.

The Commodity Futures Exchange Commission said Tuesday that it is looking into cattle futures trading data on the Chicago Mercantile Exchange as far back as Dec. 9 – the day the diseased Canadian Holstein was slaughtered in Washington State and two weeks before the Agriculture Department confirmed it as the country’s first case of mad cow.

Investigators are targeting investors who made bets that cattle prices would decline prior to the Dec. 23 announcement by Agriculture Secretary Ann Veneman.

The CFTC’s enforcement division is looking into “an unusual situation that resulted in volatility in the market,” Alan Sobba, a spokesman for the Washington-based agency said.

“We will do a thorough and complete job,” Sobba said. He added that the CFTC routinely looks into irregular trading patterns and would put no timetable on the investigation, the existence of which was first reported Tuesday by The Wall Street Journal.

Officials at the Chicago Mercantile Exchange are “cooperating fully” with the investigation, spokesman John Holden said.

Investigators are interviewing potential witnesses, and gathering paper and phone records.

At a Senate Agriculture Committee hearing on Tuesday, Veneman was questioned about whether the department waited too long before announcing that the diseased Holstein contracted the disease in Canada and thereby fueled market uncertainty and volatility.

Veneman said her agency informed the public as quickly as it could – initially that a Holstein in Washington state had mad cow, and later that it was born in Canada and apparently became infected there.

Prior to the announcement of the diagnosis on Dec. 23, the front month cattle futures contract settled for the day at 90.675 cents per pound on the CME.

Within a week, the price had fallen below 74 cents per pound, potentially yielding huge profits for investors who took short positions, betting the price would fall.

Concerned about trading in cattle futures the moment it found out about the first case of mad cow, the National Cattlemen’s Beef Association urged the CFTC on Dec. 23 “to closely monitor the markets for any signs of illegal activity,” according to a statement released Tuesday by the trade group.

Officials at the CME and CFTC said investigators would likely try to determine whether information about the infected cow had been leaked, and by whom, before Dec. 23.

However, they noted that insider trading is more narrowly defined by the CFTC than the Securities and Exchange Commission, and that potential violations would vary if traders had advance knowledge, depending on when they received the information and from whom. The source of any information leak could also be charged.

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On the Net:

CFTC: www.cftc.gov

AP-ES-01-27-04 1636EST