Another fantastic "leader: ex-CBOT chief Patrick Arbor admits he dodged taxes for 30 years

Patrick Arbor, the former chairman of the Chicago Board of Trade involved in an ugly divorce case, acknowledged in court documents that he dodged paying income taxes for 30 years on assets he has outside the United States and only made amends with the government last year after he was prompted by his wife's attorneys.

In court documents, he called the move by her lawyers "blackmail" but that it "took a great burden off my shoulders . . . (which was) there for many, many years." As part of a federal amnesty program, he will pay back taxes for the past eight years, he says.

Mr. Arbor, 75, hasn't responded to requests to talk about the divorce case involving his former wife, Antoinette Vigilante. Howard Rosenfeld, his lawyer, says he doesn't know where his client is. And loyal friends say they're in constant contact with Mr. Arbor by email, but they won't discuss his location. Mr. Arbor told Reuter's he is now an Italian citizen living in Europe.

Attorneys for Ms. Vigilante, 56, suggested in a story in the Chicago Sun-Times, which first wrote about the divorce case, that Mr. Arbor has left the country to avoid paying Ms. Vigilante the $18 million ordered by the court as part of the divorce settlement.

“Mr. Arbor's position is that he hasn't been treated fairly by the court,” says Mr. Rosenfeld, adding that Mr. Arbor is weighing an appeal.

In a 165-page transcript of one of the court hearings, Ms. Vigilante accuses the Chicago businessman of numerous infidelities during their 16-year marriage, and he says she broke into his email and a private safe.
During the hearing, Mr. Arbor accuses Ms. Vigilante's legal team of blackmail and, asked repeatedly whether he had failed to provide the court with a full report of his assets, answers, “Yes.”

Did he have money outside the United States that he hadn't disclosed for 30 years? “Yes,” he answered. Later, he says, he joined an amnesty program to pay back taxes because of Ms. Vigilante's lawyers' "attempt to blackmail me."

The court documents also give a glimpse at how Mr. Arbor has spread his wealth.
Ms. Vigilante, who didn't respond to requests for comment, filed for divorce in 2011, citing irreconcilable differences. A temporary restraining order was issued to keep Mr. Arbor from moving his money. Once that action was removed last year, the Chicago businessman said he withdrew $250,000 from an account in Northern Trust Co.

"He has a right to do whatever he wants with his money," Mr. Rosenfeld told me today.
In the court papers, Mr. Arbor disclosed that he has $13 million in a structured account that's held in a foundation in Lichtenstein but with assets in the Bank of Frey & Co. in Switzerland. (The two countries border each other.)

He also says, in the document, that a safe he had in his Water Tower Place home had $400,000 in gold, worth about $1,700 a piece, as well as $80,000 in Euros and $90,000 in U.S. dollars. He accuses his ex-wife of taking the contents of the safe.

Mr. Arbor's attorneys say information about their client's wealth was obtained unlawfully by Ms. Vigilante, who used her husband's iPhone password to gather information, including that Mr. Arbor did business with Firtus Holding SpA in Switzerland.

Ms. Vigilante testified that “the marriage was dependent on him giving me access to his e-mails and phones because I suffered from a significant amount of infidelity with him.”

During testimony, Mr. Arbor acknowledges using his grandparents' last name of Mazzoni on his Swiss accounts. Her lawyers questioned him about his intent to buy a home outside of the U.S., and he acknowledged looking at properties all over the world, including Italy, Moldova, Kiev, Switzerland, the Ukraine and Panama. He denied he intended to buy.

Mr. Arbor says when he worked at London Investment Trusts earlier in his career, he put $8.5 million in a London bank.

Asked by his lawyer whether he reported that to the federal or state government for income tax purposes, Mr. Arbor said, “I did not, sir, because, as you know, major corporations in the United States like Apple and Google do not report on monies made offshore.”

Mr. Arbor details having to spend extraordinary amounts of money on jewelry for his ex-wife. “She was obsessed,” he said during testimony.

He didn't reveal to her that he had any offshore accounts until he agreed to pay 17,000 euros ($23,000) for a necklace in 2009. They saw it while at a jewelry store in Capri.

He also used money from the Swiss account to pay $2 million to keep a Lake Geneva, Wis., home of his wife's from going into foreclosure, he says in testimony.

Much of the testimony shows Mr. Arbor had created accounts to benefit his children, an adult son and daughter, from his first marriage. He also has adult daughter from another relationship during that first marriage. That daughter went on to model in Playboy magazine.

He also spoke of supporting a sister who was injured in a car accident. Mr. Arbor says for 16 years he has given her $100 a week in an envelope. “I give 52 envelopes with $100 in each envelope, and I give it to her once a year. In addition, I pay all the medical expenses for her.”

For the two children from his first marriage, Mr. Arbor created an account in Panama and bought a $650,000 property at Playa del Carmen in Mexico, the court documents say. That vacation home is part of a high-end resort about an hour from the airport in Cancun.

This Day in Wall Street History 1987: Chicago Board of Trade implements daily price ceilings

With Wall Street still feeling the effects of the record crash of October 1987, futures exchanges scrambled to prevent any more precipitous declines.

On this day in 1987, the Chicago Board of Trade took its own precautionary steps, implementing a daily price ceiling on the Major Market Index future, as well as the Institutional Index future.

Under these limits, the 20 stocks on the Major and Institutional indices were restricted to moves of no more than 40 and 25 points, respectively.

Following the October debacle, Wall Street officials came under fire for failing to reign in and regulate index-futures trading; the move by the Chicago Board was a step toward quieting these claims, as well as holding off potential legislative action by Congress or federal officials.

Source: History.com

CME wants city subsidy for renovation of the Chicago Board of Trade Building

CME Group Inc. is seeking $15 million in city aid to help pay for a major renovation of the Chicago Board of Trade Building, which became the exchange’s headquarters after its 2007 buyout of the Board of Trade.

The CME has promised to create 900 jobs over the next 10 years, in addition to the 1,800 current employees, in exchange for the tax-increment financing grant, according to Alderman Robert Fioretti (2nd), whose ward includes the building at 141 W. Jackson Blvd.

The subsidy would cover about a quarter of the $61-million cost of rehabbing the landmark Art Deco property, the longtime anchor of the LaSalle Street financial district.

The CME’s request is likely to spark more questions about the city’s use of TIF money, which critics call corporate welfare but city officials defend as an important job-creation and development tool. Mr. Fioretti contends that the CME grant is money well spent, saying it would keep the company from moving its headquarters to another city.

The city offered the CME a generous aid package — totaling as much as $40 million — around the time the exchange was wrapping up its $12-billion acquisition of the Board of Trade in July 2007. But so far, the discussions between the city and CME have resulted only in the current $15-million TIF proposal.

The CME acquired the New York Mercantile Exchange last year, opening up the possibility of a move to New York, says a CME spokeswoman.

Companies occasionally threaten a headquarters move as a negotiating ploy, but Mr. Fioretti says it’s a real possibility in the CME’s case. A CME spokeswoman says the exchange is “committed to Chicago,” but relocating to New York is “always an option.”

The city and exchange are still negotiating the TIF proposal, which was to be considered Tuesday by the city Community Development Commission but was pulled off the meeting agenda last week. The commission may review the request at its October meeting, a spokeswoman for the panel says.

“We want to be a very viable and appealing option for them,” she says.

The City Council would need to approve a TIF grant.

The Board of Trade Building sits in one of more than 130 TIF districts created by the city to spur development. In a TIF district, a portion of property tax revenue that would normally go to school districts and other government bodies is set aside for projects that city officials believe wouldn’t happen without a subsidy.

The CME would use the TIF subsidy to help pay for the rehab project at the 79-year-old Board of Trade Building. The renovation, parts of which are already under way, includes the expansion of the exchange’s trading floors and mechanical upgrades.

“The building’s a landmark building and it needed some work to make it appealing to tenants,” the CME spokeswoman says.

The project would follow a $20-million renovation completed in 2006 to fix up the building’s interior and exterior public spaces. The 765,000-square-foot tower is 96% occupied.

In addition to being one of the Loop’s largest employers, the CME supports jobs at many nearby local businesses, including trading firms and restaurants, says Mr. Fioretti, the alderman. For every job at the CME, related businesses employ 2.74 people, he says.

“This is the type of project that benefits the city and the country,” he says.

CBOE-CBOT settlement gets judge’s OK

After a nearly two-month delay, a Delaware judge entered an order approving the settlement of a long-running dispute between the Chicago Board Options Exchange and the Chicago Board of Trade, moving the options exchange closer to joining its competitors as a shares-based company.

The entry of a “final implementing order” starts a 30-day period in which any appeals must be filed, CBOE Chairman William Brodsky told members in a memo Wednesday. The judge initially approved the settlement in early June. The deadline for appeals is Aug. 28.

The exchanges have been battling in court for almost three years over whether Board of Trade members, whose exchange CME Group Inc. bought in 2007, are entitled to a stake in CBOE. The settlement, which gives certain Board of Trade members an 18% stake in CBOE and $300 million in cash, paves the way for CBOE to strike a deal with another exchange or to hold an initial public offering.

Those options weren’t open to CBOE without the settlement.

The dispute between the exchanges dates to 1973, when CBOT members funded the start-up options market, giving themselves the right to trade there.

CBOT members and the Board of Trade sued CBOE in August 2006, arguing that the trading rights also conferred equity ownership in the options exchange.

CME Group has bankrolled the lawsuit since it bought the CBOT.

The dispute raised enough questions about who really owned the CBOE that it kept the options market from pursuing an IPO or merging with another exchange.

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.

CBOT, CBOE agree on ownership rights

The Chicago Board Options Exchange said on Wednesday it has reached a definitive deal with CME Group Inc.'s Chicago Board of Trade over who is entitled to participate in a lucrative legal settlement that was agreed to earlier this year.

The deal defines which CBOT full members qualify for an ownership stake in the largest U.S. options market, which needs a settlement in order to complete its restructuring into a for-profit company.

Once this happens, it would clear the way for the options market to eventually float shares to the public. Analysts widely expect CBOE to be an attractive acquisition prospect for larger world exchanges.

The deal was delayed the last couple weeks so that both parties could work out the terms of the tentative settlement announced on June 2, which calls for certain CBOT members to receive $300 million in cash and an 18 percent equity interest in CBOE.

The valuation of the settlement remains unchanged. But it now defines which CBOT class member is eligible to receive the CBOE equity portion or just the cash part of the agreement.

The proposal still requires approval from a simple majority of the 931 seats held by CBOE members and the Delaware Court of Chancery. A CBOE membership vote is slated for Sept. 17.

The agreement would end CBOE's protracted legal dispute with certain members of the CBOT, now part of CME, the world's largest derivatives exchange.

Sources close to the negotiations told Reuters the definitive deal was delayed as those in charge of a class-action lawsuit tried to define the class of members who would be eligible to participate in the settlement.

The CBOT and some of its members sued the CBOE in 2006 in a Delaware court to retain so-called exercise rights at the options exchange. Those exercise rights would cease to exist upon approval of the settlement.

The trading rights date back to when the options exchange was spun off by the Chicago Board of Trade in 1973 and eligible CBOT members were allowed to trade options at the exchange without having to buy a membership.

The CBOE contends those rights were extinguished when CME Group bought CBOT last year.

Chicago offers aid for Chicago Mercantile Exchange

Chicago officials are offering the newly joined Chicago Mercantile Exchange and Chicago Board of Trade a potentially handsome wedding gift from taxpayers: millions of dollars in government subsidies, even as the exchange prepares to lay off more than 400 local workers.

In a July 6 letter sent to the heads of the exchanges days before shareholders approved the Merc's $12-billion acquisition, Lori T. Healey, Mayor Richard M. Daley's chief of staff, dangled what insiders say is as much as $40 million in potential aid to help the world's biggest futures market get off to a fast start. Illinois' economic development director, Jack Lavin, in a separate July 6 letter, also offered assistance.

The potential funds, perhaps in the form of a tax-increment financing grant from the city, could go toward building upgrades as the Merc moves pit-traded agriculture and financial markets from its 30 S. Wacker Drive headquarters to the CBOT's bigger space at 141 W. Jackson Blvd. The Merc plans to convert its Wacker Drive trading floors into offices.

CME Group Inc., the new name of the combined exchange, will spend $200 million on both projects, according to the letters. That's where the government comes in.

City Hall is prepared to offer "assistance to facilitate the real property acquisition and property rehabilitation that is part of your historic efforts in Chicago," Ms. Healey wrote in the letter. "You can rest assured the city is committed to assisting in the retention of these two great Chicago companies and their related employment. . . . "

The letter doesn't put a dollar value on the assistance, but a political insider says the letter's focus on building reconstruction points to TIF funding, which can cover as much as 20% of the cost of such projects. The CBOT's 77-year-old Art Deco building sits in one of the city's approximately 140 TIF districts, which aim to spur development by offering subsidies drawn from property tax revenue.

'VERY APPROPRIATE' OFFER

Laurence Msall, president of the tax policy watchdog Civic Federation, says the offer is "very appropriate, because the city has an interest in seeing the Merc and the Board of Trade strengthening their commitment to Chicago. But the city needs to make sure that its assistance has a long-term benefit to the city, rather than just for the for-profit company."

No funds have been committed, a spokeswoman for the mayor's office says. "The letter was prepared to show general support" for the merger, she says. "They'll have to apply for assistance." As for state help, the Merc could receive job-training funds, a spokesman for Gov. Rod Blagojevich says.

Meanwhile, the exchange will slash its combined payroll to 1,750, or 19% below current levels, based on figures in the letter. The cuts are part of a plan the exchanges say will reduce expenses by about $150 million a year.

"There are certainly people who will be affected. We haven't yet identified what those numbers are," CME Group CEO Craig Donohue told reporters last week.

RECORD EARNINGS

The expected job cuts would come soon after both exchanges reaped record earnings as financial trading boomed. In 2006, the Merc and CBOT generated combined profit of $579 million on $1.71 billion in revenue. The cuts would be the latest round of layoffs stemming from mergers or acquisitions among Chicago-area companies.

While Mr. Donohue said jobs could be cut from both exchanges, personnel decisions to date suggest that most of the 410 anticipated layoffs will come from the CBOT, which has about 730 employees. The Merc earlier this year named only one CBOT executive — Chief Operating Officer Bryan Durkin — to the 12-person management team of the combined company.

Marketing, accounting, human resources and other positions duplicated by the merger will take the biggest hit, with reductions of as much as 30%, says Rick Cobb, executive vice-president at outplacement consultancy Challenger Gray & Christmas Inc.

"If organizations are smart about their cuts, they should cut deeper than they need to in order to bring in new talent," Mr. Cobb says. Any incentives from the city are likely not tied to promises to reduce layoffs, he said.

CME Group will create 143 new full-time jobs within two years and 750 jobs over the next 10 years, according to the letters.