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SEC, CFTC urged to align rules to police markets

Published on Sunday, September 6, 2009 Email To Friend    Print Version

WASHINGTON (Reuters) - The two main U.S. regulators policing the securities and futures markets were urged on Thursday to align their rules for ferreting out fraud, protecting investors and
punishing wrongdoers.

At the second day of an unprecedented joint meeting of the Securities and Exchange Commission and Commodity Futures Trading Commission, former enforcers and market experts pushed for a coordinated approach against fraud.

“There is a day and night difference... This disparity calls out for harmonization,” John Coffee, a professor at Columbia Law School told the agencies, which are under pressure to resolve longstanding conflicts that have been laid bare by the financial crisis.

The two regulators have important differences in areas such as enforcement authority and their stance on market manipulation, civil penalties, arbitration, investor recourse and insider trading.

CFTC Chairman Gary Gensler acknowledged there were differences and said he was interested in making sure that his agency has the full authority to police markets.

Gensler told reporters after the hearing that the CFTC may seek additional authority from Congress to do so, but he did not provide any details. “We may. It depends what joint recommendations we come up with,” Gensler said.

The White House has urged the agencies to give Congress a report by the end of September that identifies their conflicts and makes recommendations on how to resolve them.

The CFTC is viewed as having weaker enforcement rules and authority over the markets.

“The Commodities Exchange Act does not recognize insider trading as a violation of law,” said Damon Silvers, associate general counsel of largest U.S. labor federation, the AFL-CIO.

“This is a serious weakness... and appears to be an obstacle to meaningful oversight of the commodities markets themselves in the light of allegations of market manipulation in the context of the recent oil price bubble,” Silvers said.

The enforcement discussion came one day after a scathing report ripped the SEC apart for missing red flags going back as far as 1992 that could have uncovered Bernard Madoff’s $65 billion investment scam before he confessed late last year.

The SEC’s inspector general report found the agency never properly examined or investigated Madoff’s trading and never took the necessary steps to determine if Madoff was operating a Ponzi scheme, despite numerous warnings.

The SEC has recently appointed a new director of enforcement, made it easier for staff lawyers to obtain subpoenas and proposed rules to make investment advisers more accountable for their clients’ money.

Richard Owens, a former federal prosecutor, urged the two commissions to consider a joint set of principles for imposing sanctions and enforcement policies.

William McLucas, a former SEC director of enforcement, suggested taking a number of SEC and CFTC staff and putting them under one roof to look at where there are market problems and where the agencies should conduct investigations. SEC Chairman Mary Schapiro appeared open to this idea and said she was “fascinated.”

 
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