Spotlight: CFTC

Founded in 1974, the U.S. Commodity Futures Trading Commission (CFTC) is an independent agency charged with regulating the futures and options markets. As these markets have grown with the “financialization” of the economy, the scope and work of the CFTC have grown accordingly—no surprise, since it’s estimated that some two-thirds of the leading hedge funds are commodity pools, falling under its direct purview. If occasionally the CFTC has come under criticism for perceived failures in detecting and preventing fraud cases such as the infamous Bernie Madoff swindle, more often it is a quiet overseer of the futures market, pursuing the goals and mandates of Dodd-Frank and other regulatory acts.

The main offices of the CFTC are in Washington, D.C. The agency has a large presence in New York and somewhat smaller offices in Chicago and Kansas City, the last of which is increasingly emerging as a financial center of world importance. The number of offices corresponds neatly with the number of officers, or commissioners, who comprise the CFTC: four, as well as a fifth commissioner who, appointed by the President with the consent of the Senate, serves as chair and directs the group. To avoid any political overweighting and assure independence, the CFTC mandate requires that no more than three of the five may belong to any given political party.

At present , the chair of the CFTC is Timothy G. Massad, who oversaw the Troubled Asset Relief Program (TARP) for the Department of Treasury during the financial crisis of 2007–2008. He has served in that capacity since June 2014, along with two other commissioners appointed at the same time. The remaining two seats are vacant, though this does not appear to have any political subtext.

That political dimension is important. As of the summer of 2016, the CFTC had approximately 675 employees, a marked increase from a low of 430 during the last years of the Bush administration. Since the Republicans gained control of Congress in 2014, there have been several efforts to diminish the role and power of the CFTC and other agencies with regulatory oversight over the financial industry. If nothing else, this opposition has prevented the agency from growing to the 1,100 or so positions that the Obama administration had projected in earlier budgets. Since Dodd-Frank went into force, in fact, CFTC has had trouble holding on to staffers—not because of a work overload or any other stressor, but because the financial industry itself has been recruiting CFTC veterans to help walk it through regulatory reforms, leaving the agency understaffed.

Most recently, the CFTC has been in the news because of its role in the prosecution of former New Jersey Governor and U.S. Senator Jon S. Corzine, a Democrat, whose Wall Street brokerage was accused of improprieties following its collapse and the loss of more than $1 billion in investor funds. In 2013, the CFTC sued Corzine; last month, details of a settlement were revealed that require Corzine to pay $5 million in penalties out of his own pocket (as opposed to through insurance) and would ban him from the trading industry for life.

The agency has also made news for the wrong reasons. In February 2016, the US Government Accountability Office (GAO) reported that the CFTC had not fulfilled its requirement to record the government’s obligation on properties it had leased in multiyear agreements—in Chicago alone, a lease valued at more than $20 million. A subsequent GAO report, filed in April, noted that the agency had made ambitious expansion plans to increase leased space in accord with plans for new hires, resulting in a notable underuse of leased space—in Kansas City, with leases at more than $575,000 a year, only 43 percent of CFTC office space was occupied, while in New York, significantly more expensive quarters were only 68 percent occupied. Washington did better, but even its leased spaces were only 80 percent occupied.

The GAO has suggested that the CFTC put itself in alignment with General Services Administration (GSA) guidelines for leasing space for federal agencies, guidelines that we have written about at several points in this blog. The second GAO report concludes that “CFTC generally concurred with GAO’s recommendations”—but that it also said that “it would not be able to take actions to reduce lease costs in the near term.”

It all speaks to the old Latin tag, Quis custodiet ipsos custodes? Who will guard the guards? We’ll be keeping an eye out for developments.