Probe started in mad cow case

WASHINGTON — Federal prosecutors are looking into possible criminal violations by commodities traders who may have received advance knowledge about the first U.S. case of mad cow disease and used it to reap profits in the cattle futures market.

The disclosure of an investigation by criminal authorities, being conducted in tandem with a previously known civil probe by the Commodity Futures Trading Commission, was made by agency chairman James Newsome on Thursday in testimony before the Senate Agriculture Committee.

“We take very seriously allegations of leaked information or people trading upon leaked information. That is something we are looking at,” Newsome said in response to a question from Sen. Kent Conrad, D-N.D. He said the CFTC is cooperating in a probe with the U.S. attorney’s office in Washington, which is expected to be completed this summer.

Newsome told reporters after the hearing, “There are potential violations of both civil and criminal laws here.”

Justice Department spokesmen didn’t immediately return a telephone call seeking comment.

In a months-long investigation, the CFTC has examined cattle-futures trading data on the Chicago Mercantile Exchange as far back as Dec. 9, 2003 — the day a 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 disease.

The CFTC investigators have focused on traders who bet that cattle prices would decline prior to the Dec. 23 announcement by Agriculture Secretary Ann Veneman.

The source of any information leak also could be charged.

Lawmakers have questioned Veneman about whether the department waited too long before announcing that the diseased Holstein contracted the disease in Canada, thereby fueling market uncertainty and unusual volatility in prices of cattle futures traded on the mercantile exchange.

Veneman has said the USDA 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 exchange. Within a week, the price had fallen below 74 cents per pound, potentially yielding huge profits for investors who bet that the price would fall by taking so-called short positions.

Price movements “were clearly unusual,” Conrad noted at the hearing.