|All Other Programs||76%|
|All Other Programs||76%|
The FY 2012 Budget for Enforcement is $75,059,000 and 235 FTE, of which $11,374,000 and 35 FTE relate to Dodd-Frank.
The Dodd-Frank Act, in effect:
The Dodd-Frank Act makes fundamental changes to the U.S. financial regulatory system, including new enforcement and oversight responsibilities with respect to the swaps markets. Additional FTE are necessary for the Commission to effectively and enforce compliance with the CEA by market participants. Without additional FTE, the Commission’s ability investigate violations and prosecute wrongdoers will be compromised. The Enforcement program will need to be more selective in the matters it investigates, potentially leaving serious wrongdoing unaddressed. If the Enforcement program shifts resources to cover its increased responsibilities under the Dodd-Frank Act, its ability to complete its current investigations and prosecute violations will be degraded both in terms of timeliness and scope. Further, as noted above, if the Enforcement program is unable to bring actions because of insufficient resources, other authorities will not be available to step in and fill the void.
The primary responsibility of the Enforcement program is to deter and prevent price manipulation or any other disruptions to market integrity and to protect all market participants from fraudulent or other abusive sales practices and misuses of customer assets. Such conduct undermines the integrity and functioning of the market as well as the confidence of market participants. In the enforcement role, each year the Commission performs investigations and conducts litigations for non-compliance with the laws and regulations under the jurisdiction of the CEA.
In FY 2012, the Enforcement program requests 200 FTE in order to support existing programs, an increase of 33 FTE over the FY 2011 allocation level. This staffing level is necessary for the Enforcement program to meet its existing, pre-Dodd Frank responsibilities, including the following:
Responding to Violative Conduct. When an enforcement investigation indicates that violative conduct may have occurred, the Commission files either an administrative or civil injunctive enforcement action against the alleged wrongdoers. In administrative actions, wrongdoers found to have violated the CEA or Commission regulations or orders can be prohibited from trading and, if registered, have their registrations suspended or revoked. Violators also can be ordered to: cease and desist from further violations; pay civil monetary penalties of up to $1 million per manipulation violation or $140,000 per other violation, or triple their monetary gain, and pay restitution to those persons harmed by the misconduct. In civil injunctive actions, defendants can be enjoined from further violations, their assets can be frozen, and their books and records can be impounded. Defendants also can be ordered to disgorge all illegally obtained funds, make restitution to customers, and pay civil penalties. In FY 2010, the Commission’s efforts have thus far resulted in the award of approximately $114 million in restitution and disgorgement and $40 million in civil monetary penalties.
As detailed above, alleged violations prosecuted by the Enforcement program may arise from: commodity futures or option trading on U.S. exchanges; manipulative trading in the OTC markets that affect, or tend to affect, the futures or options markets; fraud involving certain off-exchange principal-to-principal transactions; or off-exchange retail forex transactions. The Enforcement program addresses various types of violative conduct including conduct that threatens the economic functions of the markets.
Protecting Market Users. The Enforcement program works to protect market users and the public by promoting compliance with and deterring violations of the CEA and Commission regulations. The bulk of the work in this area involves investigating and prosecuting enforcement actions in matters involving fraud and imposing sanctions against wrongdoers. These actions send a message to industry professionals about the kinds of conduct that will not be tolerated.
The Commission also pursues actions involving false or misleading advertising. Over the past several years, there has been substantial false and deceptive advertising of commodity-related investment products, often by unregistered persons and entities through various forms of mass media, such as cable television, radio, and the Internet. The Enforcement program has worked aggressively to detect and stop such advertising by filing enforcement actions. Similarly, the Enforcement program pursues cases charging misconduct involving off-exchange retail forex transactions. The wrongdoers in these cases employ a variety of schemes to defraud individual retail investors, including “boiler rooms” and Ponzi schemes.
Supervision and Compliance Failures. The Enforcement program investigates and prosecutes cases involving supervision and compliance failures by registrants handling customer business. Such violations can threaten the financial integrity of registered firms holding customer funds and can, in certain circumstances, threaten the financial integrity of clearing organizations. Diligent supervision by registered firms also protects markets from manipulation and abusive trading practices, including wash sales.
Cooperative Enforcement Efforts. The Enforcement program works cooperatively with both domestic and foreign authorities to maximize its ability to detect, deter, and bring sanctions against wrongdoers involving U.S. markets, registrants, and/or customers.
On the domestic level, this includes sharing information with, and on occasion providing testimony or other assistance to, state regulators and other Federal agencies, such as the DOJ, the Federal Bureau of Investigation (FBI), the SEC, the FERC, and Federal banking regulators. The Commission may also file injunctive actions jointly with state authorities with concurrent jurisdiction. These cooperative efforts bolster the effectiveness of the Enforcement program by allowing it to investigate and litigate more efficiently.
Similarly, in the international realm, the Commission has entered into more than 25 formal information-sharing arrangements and numerous other informal arrangements with foreign authorities. These arrangements permit information sharing and cooperative assistance among regulators. Such arrangements benefit all nations involved and greatly enhance the ability of the Enforcement program to investigate matters that involve foreign entities and/or individuals, or transfers of tainted funds to foreign jurisdictions.
The markets continue to grow in volume and complexity as increasingly sophisticated instruments are employed across markets. An ever-larger segment of the population has money at risk in the futures markets, either directly or indirectly through pension funds or ownership of shares in publicly held companies that participate in the markets.
The Enforcement program will utilize the FTE requested for FY 2012 in targeting certain program areas, for example: 1) allegations of manipulation, attempted manipulation, trade practice violations, and false reporting; 2) fraud involving retail, off-exchange transactions in commodities, including precious metals; 3) misconduct by commodity pools, hedge funds, CPOs, and CTAs; and 4) financial, supervision, record-keeping and other violations committed by registered entities.
Without these FTE resources, the Enforcement program will not meet established responsibilities. Without adequate staffing, the Enforcement program must be more selective in the matters it investigates, potentially leaving serious wrongdoing unaddressed. Furthermore, investigations will take longer to complete, particularly when increasing complex litigation draws resources away from investigations, resulting in less efficient and potentially less successful actions. Likewise, domestic and international cooperative enforcement activities will be undermined, adversely affecting not only the mission of the Commission, but also that of its domestic and international counterparts.
Enforcement staff is operating at full capacity and a decrease in FTE will force the Enforcement program to shift resources from important investigations to ongoing and future litigation demands, which limits its ability to pursue new investigations. If the Enforcement program is unable to bring actions because of insufficient resources, other authorities will not be available to step in and fill the void. SROs can take action only against their own members, and their sanctions cannot affect conduct outside their jurisdiction or markets. In addition, other Federal regulators and state regulators have limited jurisdiction and expertise in handling futures-related misconduct. Finally, while criminal prosecutions by the DOJ and State authority are an important adjunct to effective enforcement of the CEA, cooperative enforcement still requires the active use of Commission FTE to assist criminal authorities in their prosecutions.
|Subprogram||FY 2011||FY 2012||Change|
|Program Activity||FY 2011||FY 2012||Change|
|Outcomes||FY 2011||FY 2012||Change|
|GOAL ONE: Protect the economic functions of the commodity futures, options and swaps markets.|
|1.1 Futures, options and swaps markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity.||$18,300||69.90||$31,862||99.75||$13,562||29.85|
|1.2 Markets are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely affect their economic vitality.||628||2.40||1,092||3.42||464||1.02|
|Subtotal Goal One||$18,928||72.30||$32,954||103.17||$14,026||30.87|
|GOAL TWO: Protect market users and the public.|
|2.1 Violations of Federal commodities and swaps laws are detected and prevented.||$19,452||74.29||$32,772||102.61||13,320||28.32|
|2.2 Commodity professionals meet high standards.||210||0.80||365||1.14||155||0.34|
|Subtotal Goal Two||$19,662||75.09||$33,137||103.75||$13,475||28.66|
|GOAL THREE: Foster open, competitive, and financially sound markets.|
|3.1 Clearing organizations and firms holding customer funds have sound financial practices.||$3,766||14.38||$6,780||21.23||$3,014||6.85|
|3.3 Markets are free of trade practice abuses.||558||2.13||910||2.85||352||0.72|
|3.4 Regulatory environment is responsive to evolving market conditions.||812||3.10||1,278||4.00||466||0.90|
|Subtotal Goal Three||$5,136||19.61||$8,968||28.08||$3,832||8.47|