After Latest Goldman Violation, CFTC’s Chilton Wants Harsher Penalties

After Latest Goldman Violation, CFTC’s Chilton Wants Harsher Penalties

U.S. Commodity Futures Trading Commission (CFTC) commissioner Bart Chilton has renewed his call for Congress to raise the maximum civil monetary penalty for entities and persons who violate financial regulation. In a statement released Friday, Chilton dissented from the CFTC’s statement on recent Goldman Sachs violations. Chilton said the penalties were too light, and that they did not match the seriousness of the violation.

“I respectfully dissent as to the amount of the civil monetary penalty (CMP). In this instance, given the egregious nature of the failure to supervise adequately, combined with the high number of violative transactions, I believe that the monetary penalty should be significantly higher in order to represent a sufficient punishment, as well as to denote a meaningful deterrent to future illegal activity,” Chilton said in a dissenting statement.

Chilton states that “approximately 60 times over seven days in mid-November and mid-December 2007…[the "Trader] used Goldman’s internal manual trade entry system to enter fabricated trades [that] concealed…the size, risks, profits, and losses of Goldman’s position.” This led to an $8.3 billion position, and, ultimately, a loss of more than $118 million.

Chilton on CFTC’s Authority

To make his point for greater penalties, Chilton cites CFTC Commission Regulation 166.3, which mandates diligent supervision.

“The principle underlying this rule is that the public interest is furthered by minimizing operational risks. Individual failures to supervise can lead to or contribute to broader economic risks, and can lower public confidence in the nation’s financial markets. The importance of this rule has only increased since the onset of the financial crisis. Accordingly, I believe we must take very seriously any violation of this important rule, and assess penalties for its violation at a level commensurate with the unlawful conduct,” Chilton said.

So if Chilton had his way, how steep would the penalties get? Chilton sites the Commodity Exchange Act to say that any given penalty should be more than a “slap on the wrist” or the “cost of doing business,” so as to dissuade entities from replicating the behavior.

Chilton calls on Congress to grant a maximum penalty of $1 million per violation for persons and $10 million for entities. In the case of the most recent CFTC enforcement of Goldman Sachs violations, the maximum penalty would have been $60 million.

Read Chilton’s statement here.

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About The Author


Elan Mendel

Elan Mendel

Elan Mendel is an associate with Shipkevich PLLC, and has done registration, compliance, and enforcement defense work for commodities, futures and forex firms registered with the CFTC and NFA as FCMs, RFEDs, and others. Elan also specializes in domestic and cross-border insolvency issues.

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