A New York grand jury is investigating alleged tax evasion and fraud involving more than $5 billion in crude oil futures on the New York Cotton Exchange.

The investigation, directed by Assistant District Attorney Andrew Strupp, is focusing on alleged violations of state fraud and tax laws through pre-arranged trading sources close to the investigation say. Federal law also prohibits pre-arranged trades - private transactions at a fixed price before they are traded openly on the exchange.

Sources estimated that more than 150 subpoenas have been issued for witnesses and documents in connection with the investigation. They also said investigators have been unable to locate their prime suspect, a commodity broker who was prominent in crude oil trading during the contract's peak activity in 1975. Neighbors of the broker in New Jersey said his home has been unoccupied for months.

In a copyrighted story, CNS said the key witness in the investigation is Vincent Cangiolosi, 29, a convicted forger who was said to have offered testimony on crude oil futures trading in return for a reduced sentence.

The crude oil investigation followed a federal grand jury inquiry begun in June 1976 into soybean futures trading on the Chicago Board of Trade. The grand jury, in four indictments and three informations, named seven persons in connection with alleged pre-arranged and fictitious trading, which investigators claimed cheated futures customers and subverted U.S. tax laws.

Similar investigations are being conducted by the U.S. Attorney's Office and the Commodity Futures Trading Commission into silver trading on the CBOT and the New York Commodity Exchange.

The crude oil case, however, is unique because the market never really traded except for tax purposes, according to an official at Bear, Stearns and Co., a brokerage firm that accounted for "about 20 per cent" of the 52,565 crude oil futures lots traded during the contract's active life.

William Donaghy, president of the cotton exchange, agreed, but noted that the internal Revenue Service did not rule until May 1977 that futures transactions for the sole purpose of avoiding taxes were illegal. The IRS regulation is retroactive to 1974.