Wall Street regulator comes of age

The smallest watchdog, once deemed toothless, brings record enforcement actions in last financial year

Wall Street’s smallest watchdog is starting to show its fangs.

The Commodity Futures Trading Commission, once considered a toothless regulator, brought a record number of enforcement cases over the past year, as fines soared. In a statement on Friday, the agency said it levied $585 million in sanctions during its 2012 fiscal year, which ended September 30, up from $450 million the year before.

The surge in fines is largely tied to one case. In June, the British bank Barclays agreed to pay $200 million to the agency for trying to manipulating a crucial interest rate.

STILL GOT GAME

• Commodity Futures Trading Commission brings record number of enforcement cases over the past year 
• Levies $585 mn in sanctions last financial year, $450 mn the year before
• Surge in fines largely tied to Barclays case
• Agency won broad powers from regulatory overhaul law passed after financial crisis, allowing it to police previously unregulated swaps market
• Law also lowered the burden of proof in court, making it easier to bring cases
• Commission brought 102 enforcement actions during the last fiscal year
• Has deep pipeline of potential cases after enforcement team opened over 350 new investigations
• Investigated prominent blowups this year, including downfall of MF Global and JPMorgan Chase’s multibillion-dollar trading loss

“We pursue unlawful conduct to protect market participants and promote market integrity,” David Meister, the agency’s enforcement chief, said in a statement.

Under Meister, the agency’s enforcement unit has been revamped. It won broad new powers from the Dodd-Frank act, the regulatory overhaul law passed after the financial crisis, allowing the agency to police the previously unregulated swaps market. The law also lowered the burden of proof in court, making it easier to bring cases.

Armed with its new tools, the trading commission brought 102 enforcement actions during the last fiscal year, a best for the agency, which had a slight uptick over 2011 and a nearly 80 per cent jump from two years ago. The agency also has a deep pipeline of potential cases, after the enforcement team opened more than 350 new investigations.

The agency’s cases traditionally took aim at little-known brokerage firms and traders suspected of manipulating commodity prices or orchestrating Ponzi schemes. But the agency raised the stakes this year as it dug into some of Wall Street’s most prominent blowups, including the downfall of MF Global and the multibillion-dollar trading loss at JPMorgan Chase.

Still, the agency faces steep challenges. Congress, for example, is crusading to cut its budget.

The MF Global case, more than any other Wall Street transgression, also hangs heavy over the agency. When the brokerage firm collapsed in October last year, its customers saw more than $1 billion of their money disappear. A criminal investigation turned up no evidence of wrongdoing among the firm’s top executives, but the trading commission is still pursuing a civil case.

The rate-rigging investigation appears more promising. After a four-year investigation, the agency scored a settlement with Barclays in June, producing the largest fine in the trading commission’s nearly 40-year history.

The case is the first of several expected actions against some of the world’s biggest banks. The banks are suspected of manipulating the London interbank offered rate, or Libor, to squeeze out extra profits and deflect concerns about their health during the financial crisis.

Meister on Friday praised his team’s progress. “I applaud the staff for their hard work and dedication to the task, and am honoured to work alongside them,” he said.

 

© 2012 The New York Times News Service