May 21 2013

Shelby Reacts to CFTC IG Report on MF Global

 Shelby Reacts to CFTC IG Report on MF Global

WASHINGTON, DC, Tuesday, May 21, 2013 – Pursuant to a request by U.S. Senator Richard Shelby (R-Ala.), a senior member of the Banking Committee, the Inspector General (IG) for the Commodity Futures Trading Commission (CFTC) today issued a report regarding the agency’s oversight and regulation of failed investment firm MF Global. 

The CFTC’s fundamental regulatory responsibility in overseeing firms such as MF Global is to protect investors.  Yet in the aftermath of MF Global’s collapse, $1.6 billion in segregated customer funds went missing.  The IG report responds to a range of questions posed by Shelby (letter attached) relating to the CFTC’s coordination with the Chicago Mercantile Exchange in overseeing customer segregated accounts at MF Global; the CFTC’s activities during the week prior to the liquidation; and CFTC Chairman Gary Gensler’s decision to recuse himself.

The CFTC IG’s full report is attached. 


Shelby issued the following statement regarding the CFTC IG report:

“Chairman Gensler aggressively lobbied for and secured sweeping new authorities for the CFTC under Dodd-Frank.  Yet this report meticulously documents the CFTC’s failure to fulfill its most basic responsibility of protecting customer accounts at MF Global — even when CFTC staff was on site.  In doing so, the report raises significant concerns regarding the CFTC’s leadership and regulatory capabilities, particularly in light of its expanded powers and request for additional taxpayer funding.

“The report also examines Chairman Gensler’s decision to recuse himself from the MF Global fallout.  He apparently had no reservations about participating in the regulation of MF Global before its collapse.  But he did when the firm unraveled.  Yet after soliciting the opinion of CFTC lawyers, he disregarded their determination that he need not recuse himself.  The report does not uncover a defensible explanation for Chairman Gensler’s capricious behavior.  I therefore continue to question whether Chairman Gensler was more concerned with protecting customers’ accounts or protecting himself from accountability.  If anything, more questions are raised by the IG’s discovery that Chairman Gensler consistently used a personal email account to discuss matters related to official business, despite agency policy against doing so. 

“I thank the IG for months of tireless work on this matter. This report provides a better understanding of the regulatory failures leading up to MF Global’s collapse, and how to prevent similar bureaucratic breakdowns in the future.”


Excerpts from the CFTC IG’s report:

CFTC Regulatory Failures

  • “In retrospect, it is clear that customer funds were in jeopardy even while CFTC staff was on site at MFGI Offices in New York and Chicago during the firm’s final days.”
  • “We are concerned that CFTC staff and management did not learn that MFGI was experiencing a run on the bank until after the fact.”
  • “CFTC staff did not formally coordinate with CME concerning oversight of MFGI.”
  • “CFTC had no examination manuals or other guidance for staff involved in overseeing and regulating MFGI or any other FCM, or for monitoring CME’s oversight of MFGI or any other FCM.”
  • “We are concerned at the lack of communication between CFTC and CME.  We learned that CME and CFTC did not formally coordinate efforts during the last week of MFGI, and that they were both on site on Thursday and over the weekend apparently by coincidence.”
  • “We are also concerned with the lack of communication between CFTC and SIPC.  But for a conversation overheard on site at MFGI on Monday October 31, CFTC staff would not have known that the SIPC trustee was on the way to the courthouse, and the SIPC filing as drafted did not protect the interests of MFGI’s FCM customers.”

Chairman Gensler’s Recusal

  • “We are concerned with the Chairman’s determination to withdraw from participation.”
  • “It is the extent of his participation prior to requesting advice that is troubling.  Moreover, after requesting guidance from the General Counsel and Designated Agency Ethics Official, the Chairman’s actions ran counter to the legal advice he received.”
  • “Seeking ethics advice only when the matter became a public sensation—after both leading the Agency’s response to the ongoing crisis and voting to authorize the Enforcement investigation—was not the most desirable course.”

Chairman Gensler’s Personal Email Use to Conduct Official CFTC Business

  • “We are concerned with the Chairman’s use of personal email to conduct official business.”
  • “When we searched the MF Global database for a tally of the number of times the Chairman used his personal email address [in connection with MF Global], we found 7,005 instances.”
  • “He used his personal email consistently from his arrival at CFTC in 2009 until the collapse of MFGI.”
  • “CFTC email policy instructs, ‘[d]o not email or forward sensitive information to a personal email address or a personal device.’”
  • “We encountered discrete conversations and drafts of official documents that we would presume CFTC would treat as privileged and confidential.”

 CFTC Did Not Alter Telework Policy during MF Global’s Final Week

  • “With CFTC’s highest ranking supervisory auditor in Chicago teleworking on both Thursday and Friday of MFGI’s final week, we wonder if the request [for customer fund information] was not taken as seriously as it might have been had she been on site with staff (especially on Friday after failing to obtain the requested documents on Thursday)…”
  • “We believe the attendance of the higher ranked Officer would have conveyed a stronger message to MFGI.”

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