Regulatory Lies and Section 6(c)(2): The Promise and Pitfalls of the CFTC's New False Statement Authority

Abstract

Among the many changes wrought by Dodd-Frank was the grant of a significant but little-noticed power to the Commodity Futures Trading Commission (CFTC) to bring civil enforcement actions against those who make false representations to the Agency. Under the provision, the CFTC can bring an action for a statement made in any context, and the Commission need not refer the matter to the Department of Justice (DOJ) for criminal prosecution under 18 U.S.C. § 1001, as has traditionally been the practice. Nor must the CFTC demonstrate that the speaker knowingly lied. Instead, the CFTC can bring a false statement enforcement action subject to a preponderance of the evidence standard, and it need only prove that the speaker reasonably should have known a statement was false-a power denied to all other financial regulatory agencies, including the Securities and Exchange Commission (SEC). The SEC's former director of enforcement, Robert Khuzami, has said in reference to the CFTC's broad new false statement authority, "Frankly, I wish we had the power the CFTC has."