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Commodities regulator poised to get tougher

By Phillips & Cohen LLP

The Commodities Futures Trading Commission (CFTC) has been dismissed as a lackadaisical regulator in the past, but it's getting more aggressive.

Although the CFTC is smaller than the Securities & Exchange Commission (SEC), both in terms of the number of attorneys in its enforcement division (200 to the SEC's 1200+) and in the size of its targets, chairman Gary Gensler is flexing the agency's muscle. He is seeking to increase the C.F.T.C.?s power now that the agency is poised to take on a new role in overseeing the vast market for derivatives that were traded off formal exchanges in the so-called over-the-counter market. He recently hired a former United States prosecutor as his new head of enforcement.

Rules have recently been proposed to implement provisions in the Dodd-Frank financial law, which greatly expands the CFTC's authority and allows it to police the $615 trillion over-the-counter derivatives market.

The proposed rules would eliminate holes in the derivatives laws and give the agency new fraud-based manipulation powers. These last would not change the agency's current powers to police manipulation using a price-based standard, which remain intact. But the new fraud-based manipulation powers would lower the CFTC's burden of proof.

The Dodd-Frank law also added incentives and protections for CFTC whistleblowers. Whistleblowers can receive between 10 and 30 percent of the monies the CFTC collects based on the whistleblower's information, provided the agency's recovery is more than $1 million.

Full post as published by False Claims Act - Qui Tam on November 05, 2010 (boomark / email).