FIA Law & Compliance Conference Kicks Off

Thom Thompson

Thom Thompson

Contributing Editor

The 41st annual derivatives industry regulatory confabulation was called to order on Wednesday afternoon in Washington, DC, by Law & Compliance Division President Tammy Botsford.

Botsford’s daytime job is executive director and assistant general counsel at J.P. Morgan. Botsford called on attendees to make new working connections at this year’s conference so that, in a Ghostbusters meme, they have an answer to “Who you gonna call?”  (Somebody you got to know at L&C.) Botsford said that this year’s panels are challenged to address the practicalities of responding to issues. “What you gonna do?” (Something you learned about at Law & Compliance.)

Botsford moderated the first panel of the day, a discussion with the directors of the four CFTC divisions. Division Director James MacDonald notably departed from the otherwise informal format to announce that the CFTC’s Division of Enforcement was publishing its Enforcement Manual on its website on Wednesday. This first-ever publication of such a document by  Commission staff will certainly be read and parsed closely. Since the manual is intended to change with the times – as it is updated with court decisions, evolving law and policy – it is a gift fo the defense bar that will keep on giving.

Speaking of enforcement, the next panel, headed by William McKay from Morgan Stanley, dealt with two favorite topics – manipulation and “insider information.” For me, the high point of this very interesting panel was the succinct explanation by Stacie Hartman, a partner at Steptoe and Johnson, that insider information as a legal concern doesn’t really arise in CFTC-regulated markets – with the narrow exception of the prohibition on use of non-public information by CFTC and self regulatory organizations’ staff in trading.  About five seconds into her explanation I wished that there was a recording of what she was saying. Hartman clarified that futures markets are the platform for people and entities to act on their own private information and thus discover a market price reflecting market realities. Securities market-related concerns about unfair access to market information don’t find the same footing in commodity futures markets. After Hartman slayed the insider information dragon, the panelists focused on “misappropriated’” information. The panel raised an increasingly important point about monitoring commitments made by entities in their NDAs that can limit their use of the information they subsequently receive in the course of business with the counterparties.  

Vincent McGonagle, Principal Deputy Director of the CFTC’s Division of Enforcement, also participated on the panel, although due to legal niceties he did not comment on any “open” matters at the CFTC. Nonetheless, the panelists noted that the government, including the Justice Department, has not had a wholly successful track record with manipulation cases. For example, in the DRW swap futures manipulation case, the court decided in favor of DRW in part because of the absence of fraud by DRW. The CFTC has also appealed a decision against its assertion of jurisdiction in the charges against Monex, a retail gold and silver merchant, in part because the CFTC was alleging only fraud in the firm’s customer dealings, without claiming manipulation. The decision in the Monex appeal is pending. The CFTC seems to be challenged to bring the right mix of fraud and manipulation in its cases.  

The panel also took note of the recent problems the Justice Department had in prosecuting Jitesh Thakkar in its first criminal manipulation case against a third party. Thakkar had been hired in 2011 to develop software later used by a spoofer. The conspiracy charge against Thakkar – that he had conspired with the convicted criminal spoofer Sarao – was dismissed mid-trial by the judge for lack of evidence of an agreement between the parties to spoof. Sarao, testifying on behalf of the prosecution, stated under oath that he had never spoken to Thakkar about spoofing. Justice Department lawyers lost (10-2) on the aiding and abetting charges and agreed to their later dismissal by the court. The CFTC has similar charges pending against Thakkar.

Later panels introduced senior National Futures Association personnel and then two of the CFTC Commissioners, Rostin Behnam and Brian Quintenz. There were no fireworks.   

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