Sunday, November 19, 2017

FERC, CFTC Reject Due Process Complaints

Agencies Split on Naming of Individual Traders

WASHINGTON — For one hour last week, it was the government on the defense.

Top enforcement officials of the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission assured energy lawyers they respect the due process rights of investigative targets, rejecting allegations that they have employed heavy-handed tactics.

“I think FERC really bends over backwards to provide a tremendous amount of process,” Larry D. Gasteiger, Deputy Director of FERC’s Office of Enforcement, insisted during an Energy Bar Association panel discussion on regulation of commodity traders.

Gasteiger and Rick Glaser, Deputy Director of the CFTC’s Division of Enforcement, were in agreement in rejecting allegations that their agencies employ “perjury traps.” But Gasteiger was left alone at the EBA’s annual meeting to defend FERC’s policy of naming individuals who have not been formally charged with wrongdoing.

Naming Individuals

“We don’t name people in complaints or orders unless we’re willing to charge them,” said Glaser. “Charging somebody in a federal complaint is a pretty big deal and that’s one thing. But then to drag somebody’s name into a federal complaint is also a big deal.”

Like the Securities and Exchange Commission and other agencies, the CFTC instead masks individuals as “voice broker A or senior trader B,” Glaser said. “It makes our orders and complaints very cumbersome to read. But we do it.”

FERC does name individuals in settlements, even if they have not been formally charged or been a party to settlement negotiations. And that is unfair, said panelist Michael L. Spafford, of Bingham McCutchen LLP.

Larry Gasteiger, FERC (L), Michael Spofford,Bingham McCutchen (R)

Larry Gasteiger, FERC (L), Michael Spofford,Bingham McCutchen (R)

“If that person is not a party to the settlement they’ve had no ability to negotiate the terms of that settlement,” Spafford said. “…So then they’ve had no input into whether their name should be included … whether the facts surrounding their name are accurate, whether or not the document speaks truthfully to them.

“You can do what the CFTC, the Department of Justice, the SEC and several other government agencies do and say `trader A’ and get across the same deterrent effect,” he continued.

Gasteiger said the commission’s policy was an attempt to respond to industry and energy bar calls for more transparency about the enforcement process.

“I do not think the practice is either unlawful or a violation of any due process standards [in] the way that we engage in it,” he said.

“As we know transparency can be generally a good thing,” Gasteiger added. ”Unless you’re the subject of the transparency and then it becomes an issue.”

Perjury Traps

The two agencies were in agreement, however, on allegations that they have set “perjury traps” by not providing timely access to deposition transcripts.

Gasteiger called the perjury trap defense “a complete red herring and a smoke screen.

“FERC does provide access to the depositions. The issue is generally the timing of it — when, not if,” Gasteiger said. “There have been a couple of instances where [copies of transcripts were delayed] if we’re concerned the release could impede an ongoing investigation.

“So I want to be clear it’s not an issue of if whether you’ll get access to the deposition. Occasionally it’s a question of when,” he said.

Rick Glaser, CFTC

Rick Glaser, CFTC

Glaser was also unapologetic.

”My suggestion is you have your clients tell the truth. … If your client is telling the truth there’s no perjury trap to be had,” said Glaser. “… We’re not trying to trick people in our … depositions. We’re trying to get information.

“The situations in which we have had concerns over when people have told us false and misleading things have been pretty clear that they were attempting to deceive us,” he continued. “This is not a grey area where we’re not sure whether you were going 35 miles an hour or 38.”

Glaser said “third parties” who are not targets of an investigation will often be provided copies of depositions before a probe concludes.

But he said the agency won’t release transcripts to targets until afterward. “We want people to give testimony that is straight forward and honest,” Glaser said. “We don’t want coordinated testimony.”

Spafford insisted Glaser’s concerns were unfounded. Regarding “shading the testimony,” he said: “I honestly don’t think that occurs.”

What is the End?

The agencies’ responses prompted moderator Robert S. Fleishman, of Morrison & Foerster LLP, to ask: “When is the investigation done?”

The question is especially timely for FERC.

Last month, an energy trading fund that has been the subject of a FERC investigation for more than three years without being charged released documents it says proves it has been unfairly hounded. (See PJM Trader Calls FERC on Manipulation Probe.) The principals of the trading firm have continued their campaign, lobbying the Senate to block FERC enforcement chief Norman Bay’s nomination as commission chairman and last week filing a Freedom of Information Act lawsuit to obtain agency records relevant to their case.

Gasteiger never answered Fleishman’s question, however. After conferring privately with Gasteiger, the moderator explained to the audience: “One of the things we’re talking about – generically – is whether something that deals with this issue is the subject of a public order or not.”

The panel’s consensus: “We’re not sure,” Fleishman said, moving on. “Next question.”

Fleishman then asked how the agencies decide whether to charge individuals, in addition to their companies, with fraud or market manipulation.

For this, Gasteiger had an answer.

“We take these cases extremely seriously, whether it’s individuals or companies,” he said. “We won’t take on a case unless we think we have an extremely solid case to present to the commission and if necessary to take it to a hearing before an [administrative law judge] or a district court proceeding.”

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