CFTC Commissioner Pushes for Heightened Enforcement Accountability in Penalty Determinations

In a public statement supporting the outcome of a recent CFTC enforcement action, CFTC Commissioner Christy Goldsmith Romero outlined how her proposed "Heightened Enforcement Accountability and Transparency" ("HEAT") test (see previous coverage) would have applied to the CFTC determination to impose out-of-the-ordinary penalties.

The HEAT test consists of a series of factors for determining when heightened penalties are appropriate. These include: (i) egregious conduct; (ii) the presence of a criminal scheme; (iii) significant harm or risks of harm to investors and/or market participants; (iv) significant harm or risks of harm to market integrity; (v) a recidivist defendant; (vi) obstruction, lying or concealment, in an investigation/examination by the CFTC, other federal authority on the same conduct, or a self-regulatory organization; and/or (vii) the need to send a pronounced message about particular conduct or practices.

Commissioner Goldsmith Romero focused on a recent Order issued by the U.S. District Court for the Eastern District of Washington granting a permanent injunction against violations of the CEA and CFTC regulations and requiring the defendant, a co-owner of a ranch, to pay a $1 million civil monetary penalty in connection with a phantom cattle fraud scheme. The CFTC case paralleled a criminal proceeding in which the same defendant was sentenced to 11 years in prison and had to pay a $244 million restitution. Commissioner Goldsmith Romero stated that "every factor exists in this case except that [the defendant] is not a recidivist."

Commissioner Goldsmith Romero added that there "is a significant need for the CFTC to send a pronounced message about violating CFTC requirements to prevent excessive speculative trading," and she urged the CFTC "to conduct deep dive studies into market manipulation and excessive speculation in commodities markets." CFTC Commissioner Kristin N. Johnson also supported the CFTC’s settlement for appropriately penalizing the owner while recognizing the "already significant consequences imposed against him" resulting from the related criminal action and company’s bankruptcy.