Financial Regulator Shutdown, Halts Investigations of Wall Street Crimes

Financial Regulator Shutdown, Halts Investigations of Wall Street Crimes

The CFTC is shutdown in the middle of implementing Dodd Frank financial regulations. -   October 9, 2013
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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.

The main U.S. regulatory agency responsible for monitoring commodity markets has ceased most of its operations during the government shutdown.

The Commodity Futures Trading Commission (CFTC) oversees commodity markets, like oil and corn. It adopts regulatory rules, and monitors markets and trading activity in order to identify manipulation of commodity prices.

It also is involved in investigations such as the LIBOR scandal, “the largest antitrust violation in world history by multiple levels of magnitude,” said Black.  “And all three of those functions have been taken off-line.”

Many regulatory and enforcement agencies are now closed due to the government shutdown.  The Security and Exchange Commission, Federal Energy Regulatory Commission, and Food and Drug Administration, are either closed or have limited their operations.

“It is open season on the public,” said Black.


Financial Regulator Shutdown, Halts Investigations of Wall Street CrimesJAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore.

The government shutdown has entered its second week, affecting hundreds of thousands of government employees and federal agencies. But its impact on one important regulatory agency has gotten little attention. The Commodity Futures Trading Commission, which oversees commodity markets like oil and corn, has ceased most of its operations due to the government shutdown. This comes at a time when the agency is in the middle of implementing Dodd-Frank financial reforms and is expected to issue new rules relating to speculations in commodities markets. The CFTC has also announced that its entire enforcement division will be closed and will not investigate allegations of Wall Street crimes.

Now joining us to discuss this is Bill Black. He's an associate professor of economics and law at the University of Missouri-Kansas City. He's a white-collar criminologist, former financial regulator, author of The Best Way to Rob a Bank Is to Own One, and he's a regular contributor to The Real News.

Thank you so much for joining us, Bill.


NOOR: So, Bill, can you just explain what the CFTC's role is in overseeing commodities markets and what it means that this agency is going to be crippled during the shutdown?

BLACK: So the CFTC has multiple roles. One role, as you discussed, was to adopt many regulations mandated by Dodd-Frank. And the Commodity Futures Trading Commission has actually been more successful in getting a number of these rules out. But it still has a significant agenda. So those rules that were designed to prevent some of the future abuses will not go forward. They'll be, at a minimum, delayed, so far by two weeks.

A second think it's supposed to do is monitor the markets and various trading situations to try to spot manipulations of prices. And these can be quite critical, because they can move the price of important commodities by enormous amounts. And the Commodity Futures Trading Commission has been active lately, warning that the banks, the big banks in particular, appear to have engaged in very substantial manipulation of commodity prices.

And this transitions into the third thing they do. They're heavily--the Commodity Futures Trading Commission is heavily involved in the investigation of the largest antitrust violation in world history by multiple levels of magnitude. And that's the LIBOR scandal, the rate fixing that affects something on the order of $350 trillion of products at any given time--so, actually, more of that, but since the fraud existed over many years. So that third aspect, the Commodity Futures Trading Commission provides personnel and expertise who are working on active investigations and enforcement actions and assistance to the prosecutors. And all of that is likely to cease as a result of this shutdown.

NOOR: So what does this mean exactly? Is it open season for Wall Street just to go--basically go rampant and, you know, violate whatever regulations they see--they want to?

BLACK: Well, they've been doing that, of course, quite a bit anyway. But yes, they are on official notice that the fishing game wardens have all been removed and they can--you know, the equivalent, obviously--and they can go out with no regulatory cops on the beat to either monitor and spot their violations, or, even if someone else spotted them, to take any enforcement action against them, or even if the enforcement action didn't work and you went to a prosecution, any risk that they would be aiding the prosecution. So it's a three strikes you're out situation at The Commodity Futures Trading Commission.

And as important as the Commodity Futures Trading Commission is, let's not forget that this is just one example of many other agencies that have monitoring and enforcement responsibilities and are supposed to be aiding the prosecutors, like the Federal Energy Regulatory Commission, which is supposed to find similar manipulation in oil and gas prices more generally, or portions of the Securities and Exchange Commission as well, and other stuff being done by Food and Drug Administration.

So in a host of ways in which the conservatives, who are, you know, holding hostage all of these things, are quite happy to have happen, it is open season on the public.

NOOR: Now, you mentioned the SEC. It appears, at least, that CFTC commissioners Gary Gensler and Bart Chilton, they appear to be more serious about regulating Wall Street than the SEC. And they're also going to be in charge of implementing aspects of Dodd-Frank. What is the government shutdown--what kind of impact is it going to have on that implementation? And is that something we should be concerned about?

BLACK: Yes. That's what I was discussing in--there are a number of rules that still need to be adopted, and no work is being done on the implementation of those rules. And those rules were prompted by real-world problems that came to the surface during the crisis. So you're further delaying the protective measures. And as I say, adopting the rules is one thing, but you have to actually enforce them, and to enforce them you have to spot the violations. So you have to have an active monitoring process. And all three of those functions have been taken off-line.

NOOR: Bill Black, thank you so much for joining us.

BLACK: Thank you.

NOOR: Thank you for joining us on The Real News Network.


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