WASHINGTON, Sept 14 (Reuters) - Internal strife at the U.S.
Commodity Futures Trading Commission over how to craft a
workable rule to crack down on speculation in oil markets has
prompted two internal whistleblowers to ask the agency's
inspector general to step in.
The whistleblowers say the CFTC team working on the
politically charged "position limits" rule has suffered
It has also struggled to harmonize the proposal with
another rule, potentially forcing commissioners to vote in
coming weeks on a doomed-to-fail measure.
Last year's Dodd-Frank financial oversight law gave the
CFTC the ability to prevent excessive speculation in the
commodity markets by clamping down on how many total contracts
any one larger speculative trader, such as Goldman Sachs or
Morgan Stanley, can control.
Some lawmakers have pressed the CFTC to rush out position
limit rules, turning up the heat this summer as U.S. oil prices
hovered around $100 a barrel and consumers paid nearly $4 a
gallon for gasoline.
But market participants have argued there is no reliable
economic analysis proving that position limits curb excessive
The CFTC has already missed a deadline in the Dodd-Frank
law to finalize position limits. Three of the five
commissioners at the CFTC, including one Democrat, have
expressed skepticism that position limits can prevent large
run-ups in prices.
CFTC Chairman Gary Gensler had hoped to get the measure
approved in September, but now it is expected to be pushed into
The complaints suggest there is strong internal dissent
over the position limits policy -- something the derivatives
industry could seize on as it tries to fight back against the
CFTC Inspector General A. Roy Lavik confirmed receiving
both complaints. They mark the first time his office has
received complaints concerning a Dodd-Frank rulemaking.
CFTC spokesman Steve Adamske declined to discuss the
complaints or their allegations.
Vermont Senator Bernie Sanders, a staunch supporter of
strict position limits, said he was concerned on hearing about
the whistleblower complaints, and he urged the agency to craft
a workable rule.
"If true, this is outrageous and it has to stop," he said
after learning about the complaints from Reuters. "For eight
months, the CFTC has thumbed its nose at this law and the
American people have been paying the price."
In an email to Reuters, an individual writing under a
pseudonym said that the CFTC inspector general has received
anonymous e-mails and letters slipped under the door in recent
days to complain that the CFTC's final position limits rule
cannot be implemented.
The whistleblowers say a recent version would require the
use of over-the-counter derivatives data that the agency does
The complaint emailed to Reuters discusses the reasons why
the position limits rule is flawed and also accuses the
position limits rulemaking team leader of kicking senior
employees off the team, and replacing them with staffers who
have very little experience, either at the CFTC, or in the
"Gutting out the intent of the position limits as required
by Dodd-Frank, wasting taxpayer monies, steamrolling over other
staff, proposing a rule that cannot be implemented, is
wasteful," said the anonymous complaint, which was e-mailed to
the inspector general's office on Aug. 31. "I hope you
investigate before it is too late."
Another similar complaint, that mostly focused on problems
in the rulemaking process, was slipped under the inspector
general's door about the same time.
The author of the emailed complaint, who purports to be a
CFTC employee, declined to reveal his or her identity to
Reuters for fear of retaliation. In an interview, the author of
the complaint slipped under the door also declined to be named
publicly, but confirmed that the two complaints are from
"The whole way it's progressed has been less than ideal,"
said this second whistleblower. "When the team first started,
it was a lot of people with broad and deep institutional
knowledge," this person said. "There are people on the team now
that have been in the futures business less than a year and
been at the CFTC even less than that."
Lavik, the inspector general, told Reuters in an interview
that the two complaints are too "vague" and "unconvincing" to
merit any investigations at this point.
However, his office is in communication with at least one
of the whistleblowers to get more information.
RULES FEARED INCOMPATIBLE
The emailed complaint in particular hinges on discrepancies
between the draft of the final position limits plan and a
separate but critically related large swaps trader reporting
rule that is tentatively scheduled to become effective on Sept.
The large swaps trader reporting rule, which was approved
with little fanfare, will allow the CFTC to begin collecting
the data it will need in order to gauge the size of the
over-the-counter market and set the position limits.
But internal critics, including the whistleblowers, say
there have been ongoing concerns that the kind of data that
will be collected by the new large swaps trader reporting rule
is inconsistent with the draft of the final position limits
rule. A partial draft of the final position limits plan is now
sitting on commissioners' desks, awaiting their review.
Unless the two rules are reconciled before the position
limit rule faces a final vote in the coming weeks, critics say
the agency will not be able to adequately measure and set
"The (position limits) team lead chose to forge ahead with
a plan that required a completely different information set and
is thus planning to propose something that cannot possibly be
implemented," the emailed complaint said.
The position limit rule is already considered by many
experts to be vulnerable to court challenges, especially after
the Securities and Exchange Commission in July had a federal
appeals court reject a rule on proxy access because of an
inadequate economic analysis.
Craig Pirrong, a professor and a director for the Global
Energy Management Institute at the University of Houston, said
concerns by internal CFTC staff about the rule-making process
could make it even easier for companies to challenge the rule.
"To the extent that there are hints that there are
procedural failings in the way that the rule was drafted and
adopted, that would provide some potential additional basis for
lawsuits," he said.
(Reporting by Sarah N. Lynch, additional reporting by
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