Dixon mulled. He was so full of himself that one seldom gave full credit to Dixon’s subtlety. He studied people largely for his own advantage, but that did not mean he was not observant. Certainly, he was familiar enough with Stern’s nuances to realize he was being told again that he had been a fool.
“How bad will this be?” Dixon asked.
“I think that you should not compare this with your prior encounters with the IRS and the CFTC.” The Commodities Futures Trading Commission was the federal agency that regulated the futures industry, the equivalent of the SEC. “They are bureaucrats and their first love is their own rules. Their minds do not run automatically to prosecution. Federal grand juries sit to indict. This is a serious business, Dixon.”
Dixon mugged up. There was a handsome, weathered look to his eyes.
“Can I ask a dumb question?”
“As many as you like,” said Stern.
“What’s a grand jury? Really. Besides something that’s supposed to make you wet your shorts.”
Stern nodded, more or less pleased that Dixon was taking things seriously enough to ask. The grand jury, he explained, was convened by the court to investigate possible federal crimes. In this case, the jurors gathered, by the court’s order, every other week, alternating Tuesdays and Thursdays, for eighteen months. They were directed by the United States Attorney’s Office, which, in the name of the grand jury, subpoenaed documents and witnesses to be examined at each session. The proceedings were secret. Only the witnesses who testified could reveal what happened. If they chose to. Few individuals, of course, wished to trumpet the fact that they had been haled before a federal grand jury.
“And what kind of chance do I stand with them?” asked Dixon. “This grand jury.”
“Very little. Not if the prosecutor decides to indict. It is the U.S. Attorney’s Office we must persuade. Inside the grand jury room, the burden of proof on the government is minimal—they need merely convince a bare majority of the jurors that there is probable cause to believe a crime has taken place. The prosecutors may introduce hearsay, and the target and his lawyer have no right to learn what has taken place or to offer any refutation. It is not what you would describe as evenhanded.”
“I’d say,” answered Dixon. “Whose idea was this?”
“The framers of the Constitution of the United States,” answered Stern. “To protect the innocent.”
“Oh, sure,” said Dixon. All things considered, especially given the havoc of a few days ago, he was taking this with stoical calm. But he was, after all, a person of considerable strength. There was no point in not admiring Dixon. He was one of those fellows Americans had always loved. Dixon had come from one of those bleak Illinois coal-mining towns near the Kentucky border. Stern had paid his college and law school bills by driving a punchboard route throughout the Middle West, and when he was out on the road in the fifties, Stern had seen these towns—colorless, square, plain as the prairies, the air sooted with coal dust—placed amid the sensuous pink forms of the earth which had been stripped and raised in the search for coal. Dixon’s father was a German immigrant, a Lutheran minister, a spare, unforgiving, tight-fisted type who had died when Dixon was nine. The mother, sweet-natured but easily trod upon, had depended unnaturally on her son. Stern had not learned any of this from Dixon, but only from his relatives, the spinster aunts and one warmhearted cousin who spoke with admiration of Dixon’s early sense that he was destined for more than the numb labored slavery of the coal town.
Behind Stern, the intercom buzzed. No answer at the U.S. Attorney’s Office, Claudia announced. It was two in the afternoon, but the prosecutors answered the phone only when they wanted to. Keep trying, Stern told her.
“One other thing we must determine,” he said to Dixon, “is how the government came to launch their investigation. We must try to identify the source of whatever allegations they have decided to examine.”
“You mean, who fingered me?”
“If you are the target, yes. When we know who spoke against you, we will have some insight into the limitations on the government’s information. Have you any idea?”
“Not a clue,” said Dixon succinctly, letting his hands flutter up futilely. No doubt he had half a dozen areas in mind where the government might question him, but he would never share any of that with Stern, who would hector him about correcting each infraction. “Probably the compliance people from the Exchange,” said Dixon at last. “They’re always bitching to someone about me.” The suggestion sounded halfhearted, at best.
The telephone rang: Stern’s inside line, a different tone, like a cricket. Only his family had this number; it was Clara whom he would generally expect. That reflex rose in him and foundered while he absorbed the second ring.
“Sender?” asked his sister. A welcome voice. Stern’s love for Silvia was like his feelings for no one else—purer, less burdened. She had been seventeen when their mother died, and Stern, five years the elder, had assumed that his role toward her would become somewhat parental, but their needs, like everyone’s, had been less predictable than that. They looked after one another; they filled in what was lost. Stern and his sister, by the habit of a lifetime, spoke each day. Their conversations lasted barely a minute. ‘So, busy?’ ‘Yes, of course. You?’ They spoke of their health, the children, the whirlwind of life. Today she said immediately, “Back at work. This is good, I believe.”
“The best alternative.” He covered the receiver and to Dixon mouthed “Silvia.” He was not certain if Dixon would want her to know he was here, but his brother-in-law pointed to himself to indicate that he would like to speak with her when Stern was finished. Stern told her they were together.
“Discussing this stupid business of the other day?”
“Just so.”
She emitted a sigh of sorts but made no further inquiry. His sister and he rarely engaged in any lingering discussions of Dixon, neither the rough and smooth of her marriage nor her husband’s complex business affairs. That was more or less the compact of thirty years ago, when Stern had so vehemently opposed their marriage. He had cited religious differences, but only as the best excuse. How could you tell your sister that this fellow who called himself your friend had the sharp look, with his double-breasted suits and pomaded hair, of a carnival barker? In those days, Stern would have wagered that Dixon would be gone when the circus left town. But he’d had greater staying power than that. He was brighter than Stern was willing to acknowledge, and more industrious. And perhaps America was a place where virtue was less spontaneously rewarded than Stern—and everyone else—had believed in those days.
“Matters are well in hand,” said Stern simply. They spoke briefly of each of his children, and with that done, he extended the phone to Dixon, who spent a few moments chatting happily with his wife. In his own fashion, Dixon was uxorious. He was covetous of Silvia’s beauty and loved to see her pampered and expensively dressed. Roses arrived for her every Friday, and you could not walk down the street with Dixon without him spying some item in a rich store window that he decided would look smashing on Silvia. He was oddly preoccupied with his wife; if Silvia had a cold, it was on Dixon’s mind. He called her four times a day. Yet this same doting husband had hot pants when any female between the ages of fifteen and sixty-five passed by, and he was always in pursuit.
“Now work hard,” said Silvia to Stern when Dixon handed back the phone. Her efforts at humor were inevitably awkward. And in this case she was only trying to mask her real concerns. Silvia, for all her occasional anguish, remained enthralled by Dixon, as dazzled as she had been as a sorority girl. His swagger embarrassed her at moments; his wandering broke her heart. But he remained her life’s romance, a figure the size of a monument, the man who still seemed to her half a dream.
“Well in hand,” said Stern again, but, having spoken, felt momentarily put out with himself. With work of this kind, it was his practice never to predict favorable outcomes. The general pattern of results, and
the evidence, seldom merited that; and he found clients easier to satisfy if he had dampened their expectations. He replaced the phone in that mood of conflict, reminding himself that this was, after all, his sister, her husband.
Stern found a copy of the grand jury subpoena in the in box on the cabinet behind his desk. He reread it and Dixon came to stand over his shoulder, bringing Stern’s humidor with him. In the office, Stern usually lit his first cigar by nine-thirty or ten in the morning, and one was always burning thereafter until he left for the day. Clara had never approved. She complained about the odor in his clothing and on his hands and during an exceptional period of high irritability some years ago had refused to permit cigars inside their home. The humidor had been his father’s, inlaid with mother-of-pearl and lined in velvet; his father, a quiet, proper man of fragile character, had placed great stock in certain objects. Stern looked into the humidor with admiration, but for the moment some freighted sense of obligation toward Clara caused him to decline.
“What does this show you?” Dixon asked, tapping the subpoena.
Stern, still reading, lifted a hand. To the first page of the subpoena was stapled a lengthy attachment describing the documents the government sought. Dixon, on behalf of his company and subsidiaries, was required to produce a variety of records—order tickets, trading cards, clearing documents—relating to a lengthy list of futures trades. The transactions, identified by date, commodity, number of contracts, month of delivery, and customer account, seemed to have been listed at random. The columns of figures marched down half the page, but the trades appeared to have been sorted neither chronologically nor by client. Stern counted for a moment. There were thirty-seven transactions.
“Let us start from the beginning, Dixon. Tell me about these documents. How are they generated?”
“You understand my business, Stern.”
“Indulge me,” he answered. The truth, of course, was that he could keep none of it straight. Other lawyers—a huge firm with offices here and in Chicago—attended to Dixon’s regular business affairs. Stern learned what little piece he needed to deal with each problem that came his way and, at its conclusion, let all of it—practices, regulations, terms of art—fly from his mind, as in the aftermath of an exam. Oh, he knew the rudiments, the definitions: a futures contract was a transferable obligation to buy or sell a standard amount of a particular commodity for an agreed price at a fixed date in the future. But the markets had moved well past the point they were at when Dixon had started decades ago, and only farmers sold futures to secure harvest prices. Today the play, as Dixon put it, was in money; the markets sold futures on the markets: on bond and currency prices, on stock indices, options on futures themselves. The talk out in the trading room when Stern visited Dixon’s offices was well beyond him, about basis trades and hedging yield curves. For all the arcana, Stern tended to recall Dixon’s confession that the first people known to write futures on the stock market’s prices were the bookies in Vegas.
“Take the first trade here, for Chicago Ovens,” said Stern, pointing to the subpoena. This client was a huge bakery concern, part of International Provisions, which produced a third of the bread one saw on supermarket shelves. Stern had visited with their lawyers in Chicago. “As I understand it, this is a typical transaction. They wanted to be certain they can buy wheat in December at a favorable price. So they instructed you to buy them ten million bushels of wheat for December delivery. Correct? Now what happens at MD?”
“Okay,” said Dixon. “Every order we get, no matter where it comes from, gets written up on our central order desk, which is here in our offices in the Kindle Exchange. Then they transmit the order to our booth on the trading floor at whatever exchange the future is traded on. Grains and financials in Chicago. Food and fibers in New York. Small lots we’ll do here. This one obviously went to Chicago. The order goes into the pit and our broker yells it out till he finds traders who want to sell December wheat. Maybe they’re selling for farmers, maybe speculators. Doesn’t matter. Then at night the exchange clears the trades—you know, matches them to make sure that MD bought ten million Dec. wheat and someone else sold it. Next day we send our confirm to the client and make sure they’ve got enough margin money on deposit with us to cover the position. That’s the whole The story. There a million variations. But that’s the basic. Right? That’s the paper trail they’re following.”
Stern nodded: all quite familiar. He studied the subpoena again, then asked what sense Dixon made of the list of trades, but his brother-in-law merely shook his head. They had been placed by five different institutional customers over a number of months. Stern had spoken last week in Chicago with the lawyers for two of these customers—a large rural bank in Iowa, and the baker, Chicago Ovens. It seemed likely, therefore, that the government had subpoenaed trading records from the other three customers as well. Stern told Dixon he would have to contact them.
“What for?” he demanded. It did not attract business to tell customers that a federal grand jury was raking through your records.
“To determine what information they provided.” One of the perpetual problems of a grand jury investigation was developing even a rough estimate of what the government knew. Most companies or individuals were not bold enough to disregard the FBI’s usual request to keep the agents’ questioning secret.
Dixon continued to venture mild objections, but eventually he gave in. His defense of his business was instinctive. He had started extolling futures in the little rural communities, and over three decades had made Maison Dixon a colossus with corporate clients, commodities pools, managed accounts. MD was a clearing member of all the major exchanges in Chicago and New York, and maintained large offices with humming telephone banks in both cities as well as here.
In the meantime, in the late 1960s, Dixon had led a group of local futures merchants in the formation of a small commodities exchange in Kindle County. Dixon’s notion was to trade in lot sizes that were more in keeping with the needs of smaller retail customers. The Chicago Exchange would not trade a contract for the future delivery of wheat or soybeans of less than five thousand bushels. In Kindle, you could trade five hundred at prices that followed Chicago’s, tick for tick. The Kindle County Futures Exchange—the KCFE—had established its ‘minimarket’ in all the most popular contracts, and Dixon continued to press his fellow directors for innovations. For the last two years, he had been relentlessly courting the approvals needed to trade a future on the Consumer Price Index. Dixon had made not one smart play in his lifetime but half a dozen. He was regarded with the usual mix of awe and distaste in the financial community. A maverick. A shark. Shrewd. Unreliable. But talented. He had fierce enemies and many admirers.
“Who are these customers, Dixon? What do they have in common?”
“Nothing. Nada. Different commodities. Different strategies. The only thing I’d say is, they’re probably the five biggest customers I have.” He uttered this with considerable resentment. The government was attacking at a vulnerable spot.
“And what have you to do with these accounts, Dixon?”
“Not much. Those are big trades they’re looking at,” said Dixon. “House rule is that I’m notified on anything that size. But that’s it.”
“Big trades?” asked Stern.
“Look at ’em,” said Dixon. “Everything there is fifteen hundred contracts, two thousand contracts. Pit’s gonna jump with those kinds of orders.”
“Explain, please.”
“You understand this, Stern. Take pork bellies. One car of bellies—one contract—is 40,000 pounds. I get a customer who wants fifteen hundred cars, that’s a whole lot of bacon. The price is gonna take off like a rocket. It’s supply and demand. You know, we try every gimmick known to man to slow things down. We lay off trades to friendly brokers. We buy the cash commodity and sell the future. But you can’t stop it completely. It’s like changing nature.”
“Ah-ha,” said Stern. So they did know something. The governme
nt was investigating large trades, trades which MD handled, trades which Dixon knew about, trades which, when placed, had had a significant impact on prices. “And is there nothing else which occurs to you?”
Dixon shook his head gravely. Nope, nothing, he didn’t know a thing. Stern laid his thick finger again across his lips. Even with this news, it remained difficult to assay the government’s suspicions. The records called for could relate to a number of schemes, particularly on the futures exchanges where knavery of all kinds was rife. Were Stern to guess, his estimate would be that Ms. Klonsky and her colleagues suspected market manipulation of some kind. There were all manner of baroque ploys. A month or two ago, the papers had been full of stories about a foreign government with a failing sugar crop which had tried to force down the world sugar-futures price so the government could buy and fulfill upcoming delivery commitments more cheaply. They had circulated authoritative rumors that something called ‘left-handed sugar,’ a no-calorie form of natural sugar, had been perfected. For three days prices plummeted, then the futures commissions merchants across the country had discerned what was occurring and bid prices out of sight. Dixon, perhaps, had found some less obvious—but equally illegal—way to tamper with the markets’ responses to these huge transactions he handled for his customers. Dixon, however, continued to point up signs that he was in the clear.
“That subpoena doesn’t even mention my name,” he said. “That has to be good, doesn’t it?”
The absence was superficially encouraging. But there would have been little reason for the agents to be so obvious in their pursuit of Dixon last week—or to have gone out of town with their initial subpoenas—unless they believed he would quickly recognize the meaning of these inquiries. His client, Stern decided, was keeping things to himself—not unprecedented in these circumstances, and, Lord knew, the general course with Dixon. Today, however, was probably not the time to press.