Gretchen L. Lowe, Acting Director of the Division of Enforcement of the U.S. Commodity Futures Trading Commission (CFTC), participated in a March 31, 2014 panel at the SIFMA Compliance and Legal Society Annual Seminar on the topic of current enforcement issues. Although Lowe spoke on behalf of herself and not on behalf of the CFTC, her remarks give helpful insight into the Division’s enforcement priorities for 2014 and factors that the Division will consider when determining whether to charge an institution.
- Enhanced jurisdiction: Looking back at 2013, Lowe stated that the CFTC brought 82 actions and imposed $1.7 billion in sanctions. Lowe expects the CFTC’s investigations and actions to continue to grow particularly in light of the dramatic increase in the agency’s jurisdiction through the Dodd-Frank legislation. In Lowe’s words, the CFTC now has jurisdiction to regulate everything from corn and crude oil to interest rates and credit default swaps. Lowe said the CFTC is charged with ensuring market integrity and the protection of customers.
- Enforcement initiatives: Lowe stated that the primary areas on which the Enforcement Division will be focused include: (1) manipulation and attempted manipulation/false reporting across markets; (2) benchmark manipulation actions; (3) actions regarding issues of ﬁnancial integrity; and (4) actions concerning internal controls and regulatory compliance. Lowe made the point that the CFTC has initiated a number of signiﬁcant litigations and that the Division of Enforcement will allocate staff and resources to prosecute those litigations. Lowe also stated that the CFTC has a small staff, and that, to the extent necessary, they will prioritize stafﬁng current litigations through to trial even if it is to the detriment of current investigations.
- Charging an institution: Lowe also discussed the factors that the Staff will consider when determining whether to charge an institution. Similar to some of the “Filip factors”1 analyzed by the Department of Justice, Lowe said that companies can only act through individuals, so the Staff looks at the (i) horizontal nature of the conduct (how widespread the conduct was/how many frontline individuals were involved), and (ii) the vertical nature of the conduct (how high up was there knowing involvement at a supervisory level). Equally important factors, however, are whether there was a lack of (i) internal controls or (ii) awareness of potential risk to the institution. Where such factors exist, Lowe said there is a need to hold the institution accountable even if no senior individuals or supervisors are charged. Lowe said an institution must be held liable for misconduct within its four walls that ﬁnds a way to continue for years. Andrew Ceresney, Director of Enforcement of the U.S. Securities and Exchange Commission, echoed the point and added that institutions should be held liable even if insufﬁcient proof exists to charge individuals where there is a failure and the institution was negligent in how it set up its controls.
As demonstrated by the CFTC’s increased activity over the past two years, and as conﬁrmed by Lowe’s remarks, the CFTC will continue to look for new ways to exercise its jurisdiction and increase its presence in the ﬁnancial regulatory space that previously was dominated by other agencies. It is also evident that the CFTC aims to hold institutions accountable for misconduct, particularly where the misconduct in question was able to continue for years with or without involvement at a senior level.