The Office of Inspector General of the Commodity Futures Trading Commission determined not to recommend that criminal charges be brought against an unnamed staff attorney for trading foreign exchange through a retail foreign exchange dealer, contrary to CFTC requirements. The staff attorney apparently based his authority to trade on somewhat ambiguous advice given by the CFTC’s Office of General Counsel prior to October 2012. However, that month the CFTC amended its “Employee Standards of Conduct” to unambiguously prohibit employees from participating in retail FX transactions. Afterwards, the employee traded FX on 18 days in 2013 and on numerous occasions in 2014. However, the CFTC never amended the version of its Employee Code of Conduct on its internal intranet until more than two years after the October 2012 change, to reflect the new prohibition, and OGC never clarified or revised its prior advice to the employee. According to the inspector general report, “We are somewhat loathe to place on the employee the burden of keeping abreast of the regulatory landscape in this instance because the Employee Code of Conduct was not updated for more than two years after the 2012 amendment.” Since the employee “did not engage in any intentional misconduct,” said the report, the inspector general did not recommend a criminal referral and cautioned the CFTC to “refrain from any adverse action against this employee.” The inspector general issued its report on February 11, 2015; it was first spotted last week by law360.com (click here to access).
My View: “To err is human, to forgive divine,” goes the adage. This applies to CFTC staff as well as to entities and persons regulated by the CFTC. There is a fundamental difference between purposeful infractions and inadvertent errors even when they go on (regrettably) for some time. The CFTC’s Division of Enforcement should keep the wisdom of the inspector general in mind next time it evaluates whether to bring a case based on an inadvertent error by an entity or person the agency regulates—particularly where there has been no demonstrable harm.