SUNSHINE WEEK: Revolving Regulators at the CFTC

SUNSHINE WEEK: Revolving Regulators at the CFTC


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As part of Sunshine Week, a national initiative to highlight the importance of open government and freedom of information, POGO is releasing a host records obtained by the Freedom of Information Act (FOIA). Read more about POGO’s plans for Sunshine Week here.

Since 2006, at least seven former employees of the Commodity Futures Trading Commission (CFTC) have disclosed their intent to appear before the CFTC on behalf of a client shortly after leaving the Commission, according to CFTC post-employment statements provided to POGO in response to a Freedom of Information Act (FOIA) request. Because the revolving door potentially engenders serious conflicts of interest, POGO believes that the CFTC and similar agencies should readily disclose post-employment records to the public.

Like other executive branch employees, CFTC staffers face certain restrictions on their post-employment activities. For instance, former employees can never appear in a representative capacity before the CFTC on a particular issue if they worked closely on that issue during their time at the Commission. In addition, according tofederal statute, former CFTC commissioners and certain senior employees must wait a year before they attempt to influence the Commission on any issue.

Despite these restrictions, there have recently been some troubling examples of the revolving door at the CFTC, many of which went largely unnoticed. In an effort to learn more about the CFTC revolving door, POGO submitted a FOIA request for statements that are required to be submitted by former employees if they expect to appear before the Commission on behalf of a client within two years of leaving.

One of the statements obtained by POGO was filed by former CFTC Acting Chairman Walter Lukken, who, as Acting Chairman and a Commissioner, oversaw an incredibly tumultuous time for commodities trading. As Matt Taibbi at Rolling Stone pointed out, during Lukken’s tenure, the price of oil futures ballooned and the amount of commodity index speculation increased twenty-fold, growing from $13 billion in 2003 to $260 billion in March 2008. Lukken assured Congress that the futures market was naturally volatile and nothing was amiss.

Lukken’s statement, filed in July 2010, indicates that his one-year cooling off period had expired. In his statement, Lukken discloses that he intended to interact with the CFTC on behalf of his new employer, New York Portfolio Clearing (NYPC), a derivatives clearinghouse. NYPC’s clearing members now include some of the biggest names on Wall Street, such as Citigroup, Goldman Sachs, Morgan Stanley, and UBS.

A year and a half later, Lukken was appointed President and CEO of the Futures Industry Association (FIA), the top lobbying group for the futures industry. The FIA spends hundreds of thousands of dollars on lobbying each year, according to the Center for Responsive Politics.

POGO has also obtained a post-employment statement filed by William Kokontis. Formerly a CFTC regional administrator, Kokontis is now a director of Chicago market surveillance for CME Group, which owns and operates some of the largest derivatives and futures exchanges in the world. CME Group spent nearly $2.5 million on lobbying in 2011 alone. The company has also come under scrutiny for its role as the front-line regulator of MF Global, which filed for bankruptcy last year after more than $1 billion in customer funds went missing.

Some former CFTC staffers who filed post-employment statements have also been meeting with current Commission officials to discuss the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama in 2010. Among other things, the Dodd-Frank Act greatly expanded the CFTC’s authority to oversee the $300 trillion U.S. swaps market, which had been notoriously under-regulated and played a central role in the financial crisis.

Allison Lurton, a former senior counsel to CFTC Commissioner Scott O’Malia, filed a statement in October 2010disclosing that she had gone to work for Covington & Burling LLP and expected to interact with the Commission on behalf of Covington’s clients. CFTC records indicate that she met with Commission staff (including Commissioner O’Malia) last month along with representatives of the American Gas Association to discuss several Dodd-Frank-related initiatives. She also met with Commissioner O’Malia last year along with the National Petroleum Refiners Association and the American Petroleum Institute to discuss the CFTC’s Dodd-Frank rulemaking on market manipulation, according to Commission records.

Stephen Humenik, another former senior staffer who worked for Commissioner O’Maliafiled a statement in October 2010 disclosing he had gone to work for Eris Exchange LLC and expected to interact with CFTC staff on issues such as Eris’s designated contract market application. Earlier this month, Humenik and other representatives of the Clearing Coalition met with Commissioner O’Malia to discuss the CFTC’s rulemaking on mandatory clearing, according to Commission records.

Some on Capitol Hill are trying to increase awareness of the revolving door. In 2010, Sen. Charles Grassley (R-IA)proposed an amendment to the Dodd-Frank Act that would have mandated the CFTC and other financial regulatory agencies to collect post-employment statements from former staffers (if they don’t already) and post these statements online. Although Sen. Grassley’s amendment was not adopted in the final version of the Dodd-Frank Act, it is clear that the federal government can do much more to disclose the serious potential conflicts of interest arising from the revolving door.

Instead of waiting for outside groups like POGO to FOIA these records, the CFTC and similar agencies should disclose potential conflicts of interest involving former employees right off the bat. As the agencies continue to meet with lobbyists and outside groups that are fighting tooth and nail to shape the implementation of Dodd-Frank, the public has a right to know about the ongoing interactions between current and former agency officials. In the meantime, POGO has created a resource page of recently filed CFTC post-employment statements, and will continue to update the page as additional statements become available.

Andrew Wyner is a POGO intern. Michael Smallberg is a POGO investigator.