CFTC: Commissioners Shouldn't Be Forced to Testify
October 03 2019 - 8:17PM
Dow Jones News
By Dylan Tokar
The Commodity Futures Trading Commission has asked an appeals
court to block an order requiring three of its commissioners to
testify over statements the agency published following a
market-manipulation settlement.
The derivatives regulator argued in a motion unsealed Wednesday
that U.S. District Judge John Robert Blakey had overstepped
judicial bounds by ordering the CFTC's presidentially appointed
commissioners to show up in court for a hearing that the judge said
could result in a referral for criminal contempt.
The appeal is the latest in a series of attempts by the agency
to prevent its new chairman, Heath Tarbert, and two Democratic
commissioners from becoming entangled in a legal battle related to
a CFTC settlement. The regulator had sued Kraft Heinz Co. and
Mondelez International Inc. over alleged manipulation of the
wheat-futures market.
To settle the CFTC's allegations, Kraft and Mondelez -- which
were one corporate entity when the agency announced its civil
charges in 2015 -- had agreed to pay $16 million.
In a move the CFTC called unprecedented, Judge Blakey in August
ordered the three commissioners and a group of CFTC lawyers to
appear at a hearing on whether the agency had violated an unusual
provision prohibiting parties to the settlement from making certain
public comments about the deal.
Despite the prohibition, the CFTC published a press release and
two statements a day after the settlement was completed, causing
Kraft and Mondelez to ask Judge Blakey to hold the agency in
contempt.
Following the order, the CFTC filed a series of emergency
requests, which were kept under seal, asking Judge Blakey's court
as well as the appeals court to delay or cancel the hearing. The
regulator argued there are legal issues around forcing its
commissioners -- high-ranking executive branch officials -- to
testify.
The motions were unsealed by the U.S. Court of Appeals for the
Seventh Circuit on Wednesday. The CFTC argued Judge Blakey was
acting as an "inquisitor" by attempting to personally investigate
Kraft and Mondelez's claims, adding the judge should be
disqualified from conducting a contempt hearing because he had
participated in the settlement negotiations.
A lawyer for Kraft and Mondelez didn't return a request for
comment.
The appeals court last week agreed to hear the CFTC's request
and ordered Judge Blakey to halt proceedings until it reached a
decision.
Judge Blakey's order would cause serious disruptions and divert
public resources away from its heavy enforcement workload, the CFTC
said in one of the unsealed motions.
Extensive coverage of the settlement would have occurred
regardless of the CFTC's press release and statements, the agency's
lawyers also argued.
"[Media] coverage of the settlement...was inevitably going to be
terrible for Kraft," they said.
One focus of the legal battle is whether the gag provision in
the settlement with Mondelez and Kraft applies to the CFTC's
commissioners.
The CFTC has argued that it is required to publish additional
statements made by a commissioner about an enforcement decision,
beyond the commission's official statement.
Along with the initial press release about the settlement, the
five-member commission had released a statement about the
settlement. Its two Democratic commissioners, Rostin Behnam and Dan
Berkovitz, also released a separate statement in which they touted
the settlement and noted the restriction on public statements.
Kraft and Mondelez have disputed the CFTC's characterization
that the commissioners weren't parties to the settlement, saying it
is at odds with the regulator's process for approving enforcement
actions, which require a vote by the commissioners.
Records unsealed Wednesday revealed that the unusual gag
provision was formulated during a confidential hearing in March,
when Judge Blakey had acted as a mediator in an effort to help the
CFTC and the two companies reach a settlement agreement.
After the hearing, CFTC lawyers had approached counsel for Kraft
and Mondelez on several occasions to relay a request by its
commissioners that the clause be removed. The companies refused,
according to the declaration of a lawyer for Kraft and
Mondelez.
The requests showed the commissioners knew they would be subject
to the gag provision, Kraft and Mondelez wrote in their brief.
"The CFTC's new interpretation is nothing more than an attempt
to manufacture an excuse and blur what was unambiguously clear to
all sides when the parties' agreed to the consent order and the
court entered it," they wrote.
Write to Dylan Tokar at dylan.tokar@wsj.com
(END) Dow Jones Newswires
October 03, 2019 20:02 ET (00:02 GMT)
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