I have recently reviewed the allegations against the CFTC in the publicly reported Rule 11 sanctions motion in CFTC v. Traders Global Group and become aware of the admonishments in the Court’s opinion dated November 14, 2023. This is a grave matter, and we, the Commission, will be subject to intense scrutiny over how we handle the alleged CFTC misconduct. This type of behavior cannot be tolerated at a law enforcement agency. Tone comes from the top, and therefore, I urge my fellow Commissioners to consider my below recommendations to finally take full accountability and appropriate corrective action to address the conduct issues and support CFTC staff.
II.
First, when there is an allegation of misconduct, there must be independence in any internal investigation and management decisions on accountability. Accordingly, consistent with the corrective action taken by the SEC in a similar situation, I believe that this case should be reassigned to Division of Enforcement staff in a different CFTC regional office or at CFTC headquarters. I am shocked that this has not yet occurred.
Second, there is an inherent conflict of interest between the CFTC’s Division of Enforcement and the Commission (its client) regarding the alleged misconduct by the Division and failure to disclose and correct multiple false statements to the Court over a six-month period. Accordingly, I also believe that the CFTC’s Office of the General Counsel or the U.S. Department of Justice should be handling the Rule 11 sanctions motion, not the CFTC’s Division of Enforcement.
The need for this corrective action is self-evident. I am seriously concerned that it took six months for the Commission to be notified for the first time of any alleged CFTC misconduct and the admonishment of the CFTC by the Court. The Commission was only notified after the filing of this Rule 11 sanctions motion. These issues should have been escalated to the Commission promptly.
III.
While I am deeply disappointed by this conduct, unfortunately I am not surprised as I have raised multiple instances in both internal and public statements where the CFTC’s Division of Enforcement has not been candid with the Commission in its recommendations on enforcement actions, including omitting evidence and legal arguments in our administrative proceedings that are material to the Commission’s deliberation.[1] I am gravely concerned that such material omissions were only discovered due to my questioning, which has been the subject of public reporting that is inaccurate.
For example, last year I internally raised conduct issues relating to the CFTC’s Division of Enforcement. When I discovered inaccuracies in the administrative record that the Division refused to correct, I questioned CFTC senior management on the review processes for accuracy and completeness in Commission memoranda and legal filings, and whether CFTC senior management believed it was appropriate to send legally inaccurate or deficient materials to the Commission as the basis for the administrative record that the Commission must deliberate upon to engage in decision-making and exercise the Commission’s quasi-judicial authority. Obviously, an inaccurate or unsupported administrative record is untenable. In another instance, I questioned the Division regarding material evidence that had been omitted from the administrative record.
I believe that such lack of candor to the Commission violates the American Bar Association’s Model Rules of Professional Conduct and the duties owed by the Division to the Commission as a client such as competence, diligence, communication, and loyalty. That is why I have proposed reforms to the Commission’s administrative proceedings for the past two years and called for a GAO study into the CFTC’s internal procedures.
It is unacceptable to “hide the ball” from the Commission, especially in order to get a rubber stamp approval to railroad the public into settlements that deprive Americans of their Constitutional rights and property. As a former Compliance officer, of course I have done my job now as a Commissioner to ensure governance and management accountability, and spoken up when I have seen conduct or other issues that must be addressed.
IV.
I have also raised concerns internally for the past two years about multiple instances of personally disparaging and unprofessional remarks made about parties subject to investigation and their defense counsel. Taken together with the other issues I have raised, it appears that the culture at the CFTC needs to be reformed as well. I have proposed various initiatives to address the CFTC’s deficiencies across governance and culture.
V.
Sunlight is the best disinfectant. The lack of appropriate action by CFTC management at many levels forces me to publish this redacted statement and publicly request that the Chairman reassign this case to Division of Enforcement staff in another CFTC regional office or to CFTC headquarters. I also publicly request that the Chairman direct the CFTC’s Office of the General Counsel or the U.S. Department of Justice to handle the Rule 11 sanctions motion. I hope that my fellow Commissioners join me in this call to do the right thing. We owe it to the hundreds of CFTC staff that are dedicated public servants.
The CFTC, as an institution of public trust, must be held to the highest standard to preserve faith in government. The Commission must swiftly deal with these allegations that are a serious blight on the CFTC’s reputation and credibility. We must restore our good name and be beyond reproach in order to effectively carry out our mission to promote market integrity and prevent fraud, manipulation, and abuse.
[1] See The CFTC Needs to Get Serious: A Strategic Plan for Reform, Statement of Commissioner Caroline D. Pham Before the Open Meeting on May 10, 2024 (May 10, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement051024.
