CFTC Amends Rules of Practice and Investigation Procedures
Commentary by Kevin Harnisch
The CFTC amended its Rules of Practice and investigative procedures. The revisions formalize settlement procedures, enhance investigative notice requirements and extend timelines for responding to charges.
The amendments clarify that the Commission may accept an offer of settlement by issuing an order instituting proceedings, making findings, and imposing sanctions. To support this, the Division of Enforcement is now required to provide the Commission with a memorandum that adheres to professional conduct rules, cites specific evidence and legal authority, and distinguishes unfavorable facts or legal precedents.
The amendments revise the procedures for notifying persons that they may be named in an enforcement action. Such notices must now be provided in writing, or confirmed in writing if given orally, and must identify the specific charges the Division intends to recommend. The rule also establishes that the Division may disclose specific evidence to the potential respondent to facilitate productive dialogue.
The rule extends the time a potential respondent has to submit a written statement regarding proposed charges from 14 days to 30 days. The Division may require a shorter submission period only upon a showing of good cause. Furthermore, the rule mandates that all written statements be forwarded to the Commission if the Division recommends the commencement of an enforcement action.
The CFTC noted that these changes are intended to promote efficiency, fairness, and transparency by: (i) ensuring the Commission has a comprehensive administrative record when evaluating settlements; (ii) providing potential respondents adequate time and information to respond to allegations; and (iii) modernizing the regulations by removing references to obsolete technology.
Commentary
Providing at least 30 days to respond to a Wells notice is a welcome recognition of current practice. The existing standard fourteen-day initial deadline is almost always unrealistic, especially for large, complex, and lengthy investigations and therefore is routinely extended. The elongated minimum time frame, when coupled with formalizing the requirement for specifying the nature of the potential charges and authorizing the disclosure of the supposed supporting evidence, will enable potential defendants to more thoughtfully assess the evidentiary record, to critically assess their legal exposure, and to make more tailored submissions and/or submit reasonable settlement offers. That ultimately serves the interests of all parties, including the Division and the Commission which should be focused on reaching the right outcome under all of the attendant factual and legal circumstances.