At Griffin Trading Co. just before New Year's Eve, the last employees had gone home and the options were dwindling for co-chief executive Farrel J. "Tex" Griffin. Realizing that bankruptcy was inevitable, he sighed, "Well, at least nobody died."
Griffin Trading did die, however -- a swift, spectacular fall for a universally respected Chicago commodities clearing firm.
The post-mortem? "Thirty years in the toilet," says Ty Fahner, a lawyer friend to whom Mr. Griffin turned in his distress.
The collapse of Griffin, undone by unauthorized overseas trading, underscores the increasingly risky business of derivatives, with globalization heightening its hazards. Griffin's default will spur consolidation pressures among clearing houses, which guarantee commodity trades and can be blindsided by client fraud.
Advocates of Chicago exchanges' open-outcry trading also will seize on Griffin's disappearance as an example -- though an ambiguous one -- of the additional perils posed by electronic trading.
A Griffin client in London, dealing in German government bond futures on Eurex, a computerized German-Swiss derivatives exchange, ended up more than 10 times over his authorized trading limit.
Griffin's failure also spotlights the different regulatory realms -- some more lax than others -- in which global derivatives firms are operating.
"Anybody who thinks this can't happen to them is wrong," says Christopher K. Hehmeyer, former president of Chicago's Board of Trade Clearing Corp.
Griffin's oversight was limited by several layers of corporate insulation between the firm and the source of its losses. Because it was not a clearing member of Eurex, it had to rely on a so-called carrying broker to maintain its position, while still another party executed the trades.
"This is what scares some of us, particularly if commodity trading is not done on an exchange with the type of controls that we have here," says Lee B. Stern, a 50-year Chicago Board of Trade member and victim himself of a rogue trader in 1992.
But Griffin's woes were amplified by additional losses stemming from trading by the firm's chief financial officer, Scott N. Szach, 32. All told, Griffin ended up with $10 million in liabilities, more than triple its capital base.
Cautions Mr. Fahner: "Scott's issues are not the ones that caused Griffin to break."
Neither Mr. Szach nor other principals returned calls to their homes. Mr. Szach's lawyer, James R. Streicker, also did not return calls, and Griffin's office referred inquiries to Mr. Fahner, who is representing the firm.
Its downfall is especially poignant because Tex Griffin and co-CEO Roger S. Griffin -- both 56 and unrelated -- have a long-earned reputation for propriety.
Tex Griffin, a former assistant U.S. attorney, was a prot‚g‚ of former Illinois Gov. James R. Thompson. Roger Griffin is a third-generation Board of Trade member, whose grandfather was chairman of the exchange during World War I.
"I don't think he's been able to come to grips with what's happened yet," says Matthias Lydon, a former law partner of Tex Griffin. "I think the effects of the shock are still there."
Griffin Trading expanded to London in 1993, lured with other U.S. firms by burgeoning European markets and prospects for the euro. By 1996, the London Financial Futures and Options Exchange, known as Liffe, had become the world's second-largest futures exchange, its volume topped only by the Chicago Board of Trade's.
Then, a Frankfurt exchange that is now part of Eurex scrambled to reclaim the business in the German bond, or Bund, that it had lost to Liffe. It is that instrument which precipitated Griffin's losses.
The quick repatriation of the Bund by Frankfurt's computerized operations served notice to Chicago's exchange community of its vulnerability to electronic competitors.
Griffin's experience could bolster Chicago's locals. Speaking of his $8.5 million loss in 1992, Mr. Stern says, "What stopped it from being a bigger fraud? It was the traders on the floor who called attention to it, and called our office."
Others say Griffin wasn't helped by the exodus of Mary McDonald, an operations whiz who is now executive vice-president of the Bermuda Commodities Exchange, and of Peggy Ogorek, an economist who opened Griffin's London office.
While Roger Griffin was born into the business -- colleagues say he could have been elected Board of Trade chairman if he had run -- Tex Griffin was a novice 25 years ago, fascinated by the industry's risks and rewards.
Like Mr. Fahner, Tex Griffin was an alumnus of the Thompson-led prosecution team whose case against Otto Kerner sent the former governor and federal judge to prison.
"(Tex's) integrity is very important to him," says Mr. Lydon. "I just feel awful that this happened to him of all people."
Crain News Service