Concurring Statement of Commissioner Caroline D. Pham Regarding Amended Complaint
October 21, 2022
I respectfully concur with the amendments to the CFTC’s Complaint originally filed on April 27, 2022, in the U.S. District Court for the Southern District of New York against Archegos Capital Management, LP and Patrick Halligan.[1]
This is an important CFTC enforcement action. However, I concur because I note that the SEC has recently issued an FAQ on security-based swaps that states that, pursuant to the Securities Exchange Act of 1934, as amended by the Dodd-Frank Act, a swap based on the shares of an exchange-traded fund that tracks a broad-based securities index is a security-based swap.[2]
The Commission has a fundamental responsibility to ensure the integrity of the derivatives markets and enforce the Commodity Exchange Act (CEA) against fraudulent schemes involving our markets and products.[3] Among other things, it is critical that swap counterparties have accurate information for risk management and other requirements.
Overall, this enforcement action is an appropriate exercise of the CFTC’s broad anti-fraud authority in order to reach alleged egregious misconduct constituting a fraudulent scheme in connection with swaps under the jurisdiction of the CFTC. The Commission must pursue justice to the fullest extent possible under the CEA, and we have the tools to do so here.
[1] Statement of Commissioner Caroline D. Pham Regarding Charges Against Archegos Capital Management (April 28, 2022), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement042722.
[2] Division of Trading and Markets, U.S. Securities and Exchange Commission, Frequently Asked Questions Regarding Security-Based Swaps (July 11, 2022) (“In the staff’s view, the swap based on the shares of an exchange traded fund (ETF) that tracks a broad-based securities index, such as the S&P 500, is a security-based swap. Section 3(a)(68)(A)(ii)(II) of the [Securities] Exchange Act provides in part that a security-based swap means any agreement, contract, or transaction that is a swap as defined under section 1a of the Commodity Exchange Act and, among other things, is based on a single security . . . . ETFs and other similar exchange-traded products register offerings of shares under the Securities Act, and list such shares for trading on national securities exchanges. Accordingly, a swap based on the shares of an ETF or another similar exchange-traded product meets the definition of security-based swap because it is based on a single security . . . .”) (citations omitted), available at https://www.sec.gov/files/faqs-security-based-swaps.pdf; cf., e.g., Jones Day, Don't Call it a Swap: The CFTC Asserts Jurisdiction Where it Shouldn't (July 2022) (“The CFTC’s assertions in its recent Archegos actions have upset the long-settled understanding of many market participants that Broad-based Index ETF [total return swaps] are [security-based swaps].”), available at https://www.jonesday.com/en/insights/2022/07/the-cftc-asserts-jurisdiction-where-it-shouldnt.
[3] See Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 Fed. Reg. 41398, 41401 (July 14, 2011) (“The Commission intends to interpret and apply CEA section 6(c)(1) and final Rule 180.1 not technically and restrictively, but flexibly to effectuate its remedial purposes.’’) (internal quotations omitted) (citing SEC v. Zandford, 535 U.S. 813, 819 (2002), and R&W Technical Servs., Ltd. v. CFTC, 205 F.3d 165, 173 (5th Cir. 2000)).
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