In a win for the CFTC, the Seventh Circuit Court of Appeals let the CFTC’s Commissioners breathe a bit more freely on Tuesday afternoon. The court ruled that the commissioners could not be required to provide testimony about their and the commission’s alleged contempt of court, as ordered by District Court Judge John Blakely. The appeals court further affirmed that the individual commissioners were not parties to the consent order that settled the CFTC’s charges of manipulation against Kraft/Mondelez. Furthermore, the appeals court noted that the Commodity Exchange Act expressly allows commissioners to express their views about the matters they vote on.
In a significant loss for the CFTC, the original cause of action – Kraft/Mondelez’s complaint that the CFTC violated the consent order by insinuating in a press release that Kraft/Mondelez was indeed guilty of manipulation – was allowed to go forward and returned to the same district court for adjudication. The CFTC’s application for a writ of mandamus regarded Judge Blakely derisively, arguing that the judge would not treat the CFTC fairly – after all, he wanted to question them! (Saying, “If you haven’t done anything wrong, I am sure you won’t mind answering a few questions” in CFTC investigations should be prohibited from now on.)
During the original emergency hearing on Kraft/Mondelez’s contempt-of-court complaint, Judge Blakely voiced his opinion that the CFTC and CFTC commissioners might need to be investigated for criminal contempt of court, and the CFTC was opposed to that. A writ of mandamus is an order from a court to a lower court ordering the judge to correct an abuse of discretion or instructing the judge on law. Requesting one is usually viewed as a bold and risky action by a respondent, since it constitutes an end-run around the court. In this case, it paid off, letting the commissioners escape testifying under oath. Their arguments probably did not endear them to Judge Blakely.
Without the stars of the show being made available for personal appearances in our local district court, there might not be any additional court arguments about the contempt complaint. Chairman Tarbert’s commission still must defend its statements, which will likely be argued in written briefs.
Yet there is still a thing that perplexes the commodities industry, and probably the commodities bar too: did Kraft/Mondelez manipulate the wheat futures market in 2011 or not? While answering that is beyond the scope of the current case, the industry deserves to know what the public regulatory authorities think and why.
Last week, at the 11th Annual Chicago-Kent Conference on Futures and Derivatives, which CFTC Enforcement Director James McDonald headlined, speakers lauded the CFTC for its practice of publishing extensive findings of law when cases are settled. In contrast, with Kraft/Mondelez, the CFTC agreed with alleged manipulators to keep its views to itself.
Referring to the gag order, the CFTC said, “We do not expect the Commission to agree to similar language in the future, except in limited situations where our statutory enforcement mission of preventing market manipulation is substantially advanced by the settlement terms AND [emphasis added] the public’s right to know about Commission actions is not impaired.” If you assume that the Commission believes these criteria for agreeing to a gag order were met here, then you have to wonder what they think are the public’s rights in this case.
The CFTC’s partial win takes the thrills-and-chills out of the contempt-of-court proceedings, although an important case remains regarding the CFTC’s behavior after settling the Kraft/Mondelez case.
Even that is a sideshow to the major case alleging manipulation that has been litigated since 2015 for a cause of action that arose in 2011. The investigation was ostensibly started under one chairman (Gensler), charges were filed under another (Massad), the case was negotiated to a settlement under a third chairman (Giancarlo) and finally agreed to by the commission under a fourth chairman (Tarbert). Despite the coming and going, the futures industry has remained continuously interested in a case which was supposed to re-define manipulation in the post Dodd-Frank era. While the contempt case against the CFTC will proceed in the federal court, the agency escapes addressing the background to the gag order that brought it into court in the first place.