Back in June of 2014, then CFTC Chairman Tim Massad announced the hiring of Aitan Goelman as the CFTC’s a new enforcement director. Mr. Goelman was previously a US Attorney in the Southern District of New York and appeared to be a great choice since he would be tough on enforcement. He made this statement when he was hires:
“I am pleased to return to public service and excited to join the CFTC at this important time when vigorous enforcement is more vital than ever. It is an honor to be able to play a part in helping the Commission fulfill its crucial mission of maintaining the integrity of the futures and swaps markets.”
Living up to expectations, Mr. Goelman announced a slew of enforcement actions over the past three years including a $120 million penalty against Goldman Sachs for interest rate product manipulation, a $250 million penalty against Citibank also for interest rate product manipulation and a $5 million penalty against Jon Corzine for unlawful use of customer funds. Mr. Goelman also nabbed Nav Sarao, the Flash Crash spoofer, and had this to say about spoofing:
“As this case makes clear, the dangers of spoofing are real. Mr. Sarao’s spoof orders distorted prices in the E-mini time and time again over a period of years. In so doing, his orders hurt real market participants. Equally as clear is our resolve to root out this behavior and bring those responsible to justice, wherever they may be.”
But Mr. Goelman seemed to be frustrated about the numerous instances of fraud that was passing through his office. In April 2015, he told Bloomberg :
“We get multiple complaints about spoofing every week. It’s not a vanishingly small or infrequent practice.”
On January 19 of this year, Mr. Goelman announced that he was leaving the CFTC. CFTC Chairman Massad issued this statement about Mr. Goelman’s service:
“During my confirmation hearing, I pledged that one of my priorities would be robust enforcement, because it is critical to maintaining the integrity of our markets. Aitan Goelman has delivered. Under his leadership, we have won path-breaking cases in spoofing and manipulation, protected investors from fraudulent actors, held firms accountable for misdeeds, and secured judgments of hundreds of millions of dollars in restitution for victims.
By all accounts, it appears Mr. Goelman did a very good job at the CFTC and was successful in hunting down some unscrupulous financial actors. But after he exited the CFTC, Mr. Goelman gave a very surprising interview to Reuters where expressed his frustration about the CFTC’s limited resources and lack of follow through:
“Goelman said there is much more manipulation, insider trading, front-running and Ponzi scheming in the markets than is being prosecuted, even though the CFTC receives the data from industry participants and exchanges and gained enhanced enforcement authority under a 2010 financial reform law.”
“One of my regrets is there’s such a massive amount of misconduct in the market we’re just not pursuing,” said Goelman, who left the CFTC after the change to a Republican administration and nearly three years as enforcement chief.
“We could do a lot more manipulation cases. We have all these new enforcement tools and this vastly expanded jurisdiction and data. But you have to be acutely conscious about the limited resources.”
Two-thirds of leads on misconduct that come into the “triage unit” of the CFTC’s enforcement division are not pursued, in part because of a lack of resources, Goelman said.
While Mr. Goelman’s comments are disappointing, we can’t say that we are surprised. Anybody who follows Eric Hunsader of Nanex knows that spoofing and layering run rampant in the commodities market. Eric has literally documented thousands of instances of market manipulation and tweets almost daily about suspicious quoting activity.
Why have rules if you can’t enforce them? Under Section 747 of Dodd-Frank, the CFTC was granted new powers to go after and prosecute spoofers but Mr. Goelman is telling us that because of budget constraints the CFTC is not doing their job. We have no doubt that the bad guys also know this fact and continue to feel emboldened. If regulators can’t perform this function, then they should subcontract it out to a private contractor. We have an idea – the CFTC should just hire Nanex!