Members of the House Agriculture Committee had the opportunity to grill members of the futures industry regulatory regime today in a hearing that focused on recent scandals. Unlike a recent hearing in the Senate, the House hearing was much more charged emotionally.
Split in two panels, members of the Committee first questioned Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler on topics ranging from Dodd-Frank implementation, to the action taken against Barclays for manipulation of the London Interbank Offered Rate (Libor), to the recent PFGBest fraud and bankruptcy. His written testimony is linked below.
Of particular interest to Congressmen was the subject of the futures industry’s self-regulatory model. Rep. Marcia Fudge (D-Ohio) at one point asked Gensler, “Is the NFA up to the task [of regulating], or would the public be better served by a single regulator?”
Throughout his testimony, Gensler defended the model as being a hallmark of the futures industry, but conceded some changes may be needed. Additionally, when Rep. Marlin Stutzman (R-Ind.) asked about implementing an insurance fund for futures customers, Gensler answered that it is a matter of cost vs. benefit.
In the second panel, the Committee heard testimony from CME Group Executive Chairman Terry Duffy, National Futures Association (NFA) President Dan Roth and Futures Industry Association (FIA) President Walter Lukken. This was the first Congressional appearance for each since the fraud at PFGBest came to light earlier this month, and questions focused on NFA's role in overseeing PFGBest and how the actions of PFGBest are affecting the rest of the industry. Links to their written testimonies are below.
While each expressed sadness and regret for the recent events, that did little to placate the ire of Committee members. Rather than question any members of the panel, Rep. Steve Southerland (R-Fla.) used his allotted time to chastise the panel saying, “You represent an industry that has an integrity crisis.… What have you done to deserve self-regulation?”
Much of the panel’s defense pointed to the elaborate forgeries created by former PFGBest CEO Russell Wasendorf, Sr. through the 20-year fraud. Multiple panel members alluded to police not being able to stop every bank robbery.
When asked if PFGBest could be characterized as a Ponzi scheme, Roth said, “PFGBest was not a Ponzi scheme, it was an outright theft.”
Looking ahead, the hearing briefly touched on proposals made by CME Group and FIA to enhance customer protection.