CFTC Office of the Inspector General - Investigation Regarding Position Limits Rulemaking - February 15, 2012

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On February 15, 2012, the CFTC Office of the Inspector General released a report on an investigation of alleged wrongdoing among agency staff working on its position limits rulemakings. According to the report, the IG found "no evidence to sustain a preliminary finding of wrongdoing by any individual connected with the position limits and large swaps trader reporting rulemakings." [1]

Background

At its August 4, 2011 open meeting, the CFTC issued its final rules on whistleblower protections and incentives. As the position limits team was completing the final rules on position limits, subsequent to the large trader reporting rules, which were finalized in July 2012, two anonymous sources came forward with allegations of impropriety.

Among the allegations were that the team leader for position limits "sneakily" got himself appointed to the role, and soon after replaced some of the team members with new members who "could be more easily manipulated." Additionally, the whistleblowers alleged that the team leader "engaged in improper communications with outside sources", and wrote the rules such that they would not be compatible with the final rule on large swaps trader reporting.

Finally, the people who submitted the claim expressed fear of retaliation from the Division of Market Oversight.

The Report

The Inspector General conducted interviews with 14 original members of the two rulemaking teams, as well as additional staff who interacted with the teams, including Chairman Gensler and members of his staff; Rick Shilts, Director of DMO (who supervised the team leads for the position limits and large swaps trader reporting rulemakings); and CFTC employees who were consulted in connection with the position limits rulemaking. [2] Among the findings:

  • "We found no evidence to sustain a preliminary finding of wrongdoing by any individual connected with the position limits and large swaps trader reporting rulemakings."
  • "No witness presented evidence of corruption or violations of law in connection with the drafting of the rules."
  • "Specifically, we found no evidence to indicate that the position limits rulemaking team leader "sneakily" had himself appointed team lead."
  • "We found no evidence that the position limits rulemaking team was managed by the team lead so as to disregard more experienced CFTC employees in favor of less experienced ones that could be manipulated."
  • "The position limits rulemaking, more so than most other rulemakings, was heavily influenced throughout by the Chairman and Commissioners, with more than one witness stating that the team lead's influence on policy for this particular rule was somewhat limited due to the Commission's direct involvement."
  • "We also found no evidence ofimproper communications with external sources; however, this allegation was vague. The CFTC documented over 100 meetings with external sources during the course ofthe position limits rulemaking process. No witness was aware of any improper communications."
  • "We found no evidence that the position limits rulemaking is fatally flawed due to its incompatibility with the large swaps trader reporting rulemaking. The two rules are interrelated. Information collected from large swaps traders will enable the CFTC to see the entire market and will also be used to implement and enforce position limits in accord with the Dodd-Frank Act."

The entire report can be found below.

References

  1. CFTC watchdog finds no wrongdoing in commodity position limits. Reuters. Retrieved on March 7, 2012.
  2. A Preliminary Investigation Regarding Position Limits Rulemaking Efforts Undertaken by the Commodity Futures Trading Commission Pursuant to the Dodd-Frank Act. CFTC. Retrieved on March 7, 2012.

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