Congressional Democrats' Amicus Brief Sides with CFTC in SIFMA v. CFTC (with Lofchie Comment and Energy Metro Desk Article Quoting Commissioner O'Malia)

Nineteen Congressional Democrats filed a motion for leave to file an amicus brief asking the U.S. Circuit Court of Appeals for the District of Columbia in support of the CFTC's issuance of issuance of Cross-Border Guidance, SIFMA v. CFTC, No. 13-cv-1916 (ESH). The amici oppose relief sought by a group of trade associations challenging the CFTC's Cross-Border Guidance, which in their words, would "allow swaps-market participants to evade United States regulation of almost the entire global swaps market by the expedients of trading swaps through foreign subsidiaries or booking swaps on foreign trading desks or exchanges."

The Congressional Democrats' proposed amicus brief argues that Congress intended that swaps regulations have cross-border effect under section 2(i) without further action by the CFTC; that absent an express requirement of formal rulemaking and consideration of costs and benefits, the CFTC has the discretion to apply section 2(i) on a case-by-case basis; and that the relief sought by the trade associations would create an exception for cross-border swaps that would be a loophole through which almost the entire global swaps market could fit.

Lofchie Comment: The brief asserts that the trade associations that challenged the legality of the CFTC's Guidance had argued that any swap that is executed outside the borders of the United States is per se outside the jurisdiction of Dodd-Frank. But the associations did not make that argument (although they did request that relief as a temporary remedy); in fact, the associations did not make a substantive argument as to the ultimate scope of the CFTC's authority. The argument that the associations made in their brief is that the Cross-Border Guidance was improperly issued as a matter of process (that is, it was not issued in accordance with the requirements of the Administrative Procedures Act). The brief also asserts that the associations argued that the CFTC was required to adopt a rule establishing the extent of the CFTC's cross-border jurisdiction. But the associations did not make that argument either. Rather, the associations argued that the CFTC did in fact adopt a rule (albeit the CFTC called the rule "guidance"), and having done so the CFTC was required to follow the process established in the Administrative Procedures Act. In short, the brief appears largely not to be relevant to the issue raised to the court by the trade associations. What is more disturbing, however,than the misdirection, is the fact that the brief argues for a regulatory scheme where the law may be applied almost wholly on a "facts and circumstances" basis. Applying the law in this manner deprives citizens of any meaningful ability to arrange their conduct so as to obey the law, and gives to the government a tremendous post facto authority to declare conduct to be criminal. It is particularly problematic that the government would assert this open-ended authority as to actions that are not inherently immoral (e.g., crimes of fraud or violence), but rather to routine, freely-negotiated contracts between largely commercial entities.This issue of social philosophy--as to whether a scheme of economic regulation should be so wholly based on "facts and circumstance--is in reality of far greater significance than is the question of whether the CFTC should properly regulate any individual swap or however many thousands of swaps. In this regard, we quote from Friedrich A. Hayek's polemic, "The Road to Serfdom" (Chapter VI, Planning and the Rule of Law): "Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law. Stripped of all technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand--rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one's individual affairs on this basis of this knowledge. Though this ideal can never be perfectly achieved, . . . the essential point. . . that the discretion left to the executive organs wielding coercive power should be reduced as much as possible, is clear enough."

Click here to view an article featured in the Energy Metro Desk series, "Drums along the Potomac," which further discusses the conflict surrounding the CFTC Cross-Border Guidance. The article refers to a discussion with CFTC Commissioner Scott O'Malia regarding the Cross-Border Guidance, who stated, "Guidance is merely to inform," further noting that he asked the CFTC's general counsel Jonathan Marcus "if we have any enforcement authority to bring a case under this guidance. He said, 'None.'" The above link is an excerpt from the most recent issue of Energy Metro Desk, which is published biweekly by Scudder Publishing Group, an energy trade news publishing company based in the Washington, D.C. metropolitan area. Those interested in learning more about Energy Metro Desk may do so by linking to www.energymetro.com or emailing [email protected]. Reprinted with permission of the publisher, Scudder Publishing Group, LLC. Copyright 2014.

See: Congressional Democrats' Amicus Brief. Related news: Better Markets Amicus Brief Supports CFTC's Cross-Border Guidance (with Lofchie and Zwirb Comments) (March 20, 2014); CFTC Legal Memorandum to Dismiss Challenge to Its Cross-Border Guidance (with Lofchie and Zwirb Comments) (March 17, 2014); Chamber of Commerce Submits Amicus Brief Regarding Lawsuit against CFTC Cross-Border Rule (with Zwirb Comment) (February 4, 2014); Market Participants File Amended Complaint Challenging CFTC Cross-Border Guidance (with Zwirb and Lofchie Comments) (January 7, 2014); Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (with Lofchie Comment) (December 4, 2013).