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By Richard Hill
The Commodity Futures Trading Commission June 29 announced its first-ever non-prosecution agreements, and the agency’s new enforcement director made clear he plans to use the tool more often.
Enforcement Director James McDonald, a former assistant U.S. attorney in the Southern District of New York, said the pacts, with three former Citigroup derivatives traders, likely will be “an important part of the division’s cooperation program going forward.”
In the deals, the traders—Jeremy Lao, Daniel Liao, and Shlomo Salant—admitted to engaging in a disruptive trading practice known as “spoofing” in 2011 and 2012 and cooperated extensively with the CFTC’s investigation, McDonald said.
The use of the non-prosecution agreements signals a “more sophisticated, Justice Department-like” approach to enforcement, Jodi Avergun, a partner at Cadwalader, Wickersham & Taft LLP, Washington, who represents corporations and individuals in civil and criminal cases, told Bloomberg BNA.
The CFTC is “exerting its authority to the fullest extent it can,” Avergun said, adding it’s no coincidence that former prosecutor McDonald was the first at the agency to make use of the tool.
McDonald said the agreements, which typically are associated with criminal investigations and less so with regulatory matters, give the CFTC a powerful tool to encourage cooperation. For complex cases such as spoofing, “there simply is no substitute for cooperating witnesses,” McDonald said.
The agreements are consistent with a general law enforcement emphasis on holding individuals responsible for their conduct, even if done on behalf of a company, Avergun said. “The CFTC could have stopped with the Citigroup settlement in January, got a lot of money, and left it at that.” Non-prosecution agreements are a creative way to use those with first-hand knowledge of intent to prove cases against other individuals, she said.
Avergun, who obtained the first non-prosecution agreement for an individual with the Securities and Exchange Commission in 2014, said the CFTC is relatively late in using the enforcement tool. “The CFTC is just trying to align themselves more with other agencies and use the same tools that other agencies” do, she said.
Another Washington attorney who defends clients in civil enforcement actions noted the SEC similarly started using non-prosecution agreements when former prosecutor Mary Jo White was leading the agency and another former prosecutor, Andrew Ceresney, ran enforcement. “It’s kind of giving a name and more formality to otherwise saying, `we’re not going to go after you.’ It enables them to announce a non-result—`we have a case, we could have brought a case, but we didn’t for very good reasons,’” said the attorney, who spoke on condition of anonymity because of potential client conflicts. He said the agreements also have the benefit of telling industry that the CFTC isn’t all bad. “Maybe it buys them some credibility, letting them say, `yeah, we do apply some nuance,’” he said. "`We’re not just bulldozers. If we see a violation, we’re not just going to charge like a bull seeing a red flag. We’re applying discretion.’” The agreements also could help produce more cases in the long term, the attorney said. Someone involved in bad conduct who hasn’t been charged by the CFTC but is feeling some heat may decide to come forward, but not before asking a lawyer, “Hey, can I get me one of those” agreements?
Lao, Liao, and Salant gave the CFTC “timely and substantial” cooperation in its investigation, had no prior record, and accepted responsibility, the agency said in a statement. In March, the CFTC settled with two other Citigroup traders who agreed to pay fines of $350,000 and $200,000 for similar alleged misconduct. Citigroup agreed in January to pay $25 million for manipulating the U.S. Treasury futures market.
In this case, Lao, Liao, and Salant identified misconduct by others, McDonald said.
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