CBOT traders indicted for fraud

(Crain’s) — Two veteran Chicago Board of Trade floor traders were indicted for allegedly cheating customers out of $2 million.

Edward Sarvey of Lemont and David Sklena of Skokie, both longtime traders in the CBOT’s five-year Treasury note futures pit, allegedly carried out the fraud on the morning of March 1, 2004, just as the U.S. Labor Department released its monthly employment report. The release of such data typically sets off a flurry of trading in Chicago, as investors use futures contracts to place bets on, or try to protect themselves from, swings in the debt markets.

According to an 11-count indictment issued late Tuesday, Mr. Sarvey took orders from customers that obligated him to sell contracts on their behalf at the best price possible. Instead, Mr. Sarvey sold the contracts to Mr. Sklena at below-market prices, the indictment said. Mr. Sklena then allegedly sold some of those contracts back to Mr. Sarvey, again at below-market prices. Both men are accused of later selling the contracts on the open market for considerably more than they paid for them.

Together, the two made more than $2 million on the trades, according to the indictment.

Mr. Sarvey and Mr. Sklena were each charged with six counts of wire fraud, one count of commodities fraud and two counts of non-competitive futures trading in violation of the Commodity Exchange Act. Mr. Sarvey also was charged with two additional counts of non-competitive trading.

The indictment seeks forfeiture of $2.1 million from the two traders, who will be charged at a future date, the U.S. attorney’s office said Wednesday.