In July, Gregory Mocek, director of the division of enforcement at the Commodity Futures Trading Commission (CFTC), sent a letter to the Washington Post in regard to a piece it ran that he said contained several inaccuracies regarding the case filed by the CFTC against Amaranth Advisors LLC.
Mocek said in the letter that the CFTC began investigating Amaranth in June 2006, which was, “well before its collapse and before congressional inquiries. To characterize a 14-month investigation of Amaranth as a response to political pressure demonstrates a lack of appreciation of how enforcement cases are brought at agencies such as the CFTC,” adding, “Rest assured, when we find evidence of manipulation or artificial prices, we investigate and bring appropriate action, as demonstrated by our ongoing investigations of more than 100 individuals and companies for possible manipulation in the energy markets. Enforcement, together with our comprehensive futures market surveillance program, has proved to be an effective form of deterrence, signaling to market participants that illegal conduct will be uncovered and prosecuted.”
What Mocek didn't appreciate was that the Congressional report made sweeping charges based on a lot of assumptions that may or may not be true, whereas the enforcement actions by the CFTC were based on specific actions of Amaranth and Brian Hunter.
The Congressional report surely put pressure on the CFTC, but the CFTC took issue with the conclusions in the report because it took action based on specific trading activity, not just on the fact that Amaranth was a huge company that lost a lot of money.
The CFTC's civil enforcement action Amaranth and Hunter alleged the defendants engaged in a scheme of price manipulation that violated the Commodity Exchange Act, specifically, the that the defendants intentionally and unlawfully attempted to manipulate the price of natural gas futures contracts on the NYMEX on Feb. 24 and April 26, 2006.
Who knew the CFTC was watching reporters too, but then again I’m sure it has to keep up with all that’s written on it.
Anyway, that really wasn’t my point. My point is this: Of course, nobody’s perfect, and we can’t expect the CFTC to catch everyone before they do wrong. All we can expect is for the enforcement people at the CFTC do their job satisfactorily, or even more than satisfactorily — which it seems they have judging by the number of enforcement actions they send out in a regular basis.
There’s always going to be that “super bad-doer” who can single-handedly bring down a corporation with a few bad, and illegal, moves, who will only get caught too late. Sure it’d be great to prevent them all, and maybe the way to do that would mean to see less enforcement and more regulation, which opens a whole new sore topic.
The industry doesn’t really want more regulation — so, then, what?