Section 753 of the Dodd-Frank Act added a new section to the Commodity Exchange Act to make it unlawful “for any person to make any false or misleading statement of a material fact to the Commission … or to omit to state in any such statement any material fact that is necessary to make any statement of material fact made not misleading in any material respect, if the person knew, or reasonably should have known, the statement to be false or misleading.”
On September 16, 2013, the CFTC sent a strong signal that it would vigorously enforce these new provisions when it entered into a $50,000 settlement with Susan Butterfield, a clerical employee at an Introducing Broker (IB), for lying during a CFTC investigation. In the Matter of Susan Butterfield, CFTC Docket No. 13-33, September 16, 2013 (Butterfield Order).
The CFTC was investigating pre-stamping orders at the IB (the IB was not identified). Done properly, paper ticket orders are time-stamped contemporaneously with the receipt of a customer commodity futures or options order to accurately record the time of day when the IB received the order. In a pre-stamped situation, as the name implies, the tickets are pre-stamped and the documentation completed well after the orders are executed. As the CFTC said, pre-stamping “undermines the reliability of the audit trail of trades executed by the IB and could be used, among other things, to facilitate unauthorized trades and or unlawful post-execution trade allocation.” Butterfield Order at 2.
Ms. Butterfield’s responsibility at the IB included, in part, accepting and recording customer orders. Thus, as part of its investigation of pre-stamping, the CFTC deposed Ms. Butterfield.
Ms. Butterfield knew that the IB pre-stamped orders and that pre-stamping was not appropriate. Prior to the deposition, she told her supervisor at the IB that the IB “pre-stamp orders” and “it’s [pre-stamping] something that is – that we should not be doing.” Id.
During the deposition, however, Ms. Butterfield initially lied that the IB pre-stamped – the record is not clear why she lied and in any event would not have justified the lie.
Q. Was there ever an instance where no one from the pit told you “We just got an order, stamp [FCM A],” and you didn’t personally receive a telephone call with an order?
Q. Okay. So you never pre-stamped any tickets?
A. No. Id. at 3.
It was only after the CFTC continued to press and confront Ms. Butterfield with documents to the contrary that she relented and admitted that “her daily practice was to pre-stamp order tickets from multiple futures commission merchants in approximately every time bracket,” so that she was prepared. Id.
As she said during her deposition:
Q: So it was your practice to pre-stamp order tickets, not only when you observed there was a lot of activity in the pit, but also when you hadn’t heard from someone in a while to make sure that you were prepared; is that right?
Q: Okay. And that was just your practice, you know, as best as you could, you would try to make sure you would have a pre-stamped order ticket in approximately every bracket in case someone would need it, right?
A. Right. Id.
While the CFTC ultimately got to the truth, it nevertheless pursued a settlement with Ms. Butterfield for $50,000. David Meister, the CFTC’s Enforcement Director, stated the reason why: “When a witness walks into CFTC testimony, he or she should plan to tell the truth to every question or face the consequences. We will use the new Dodd-Frank false statements provision [the new provision added] against witnesses who provide false or misleading information to make sure it is well understood that lying is not an option.”
The Federal Energy Regulatory Commission (FERC) has not taken action on the exact same situation—though there is no reason to believe they would not if the same situation presented itself. FERC has, however, revoked the market-based rate authority of entities that were not truthful during FERC investigations, see e.g., J.P. Morgan Ventures Energy Corporation, 141 FERC ¶ 61,131 (2012) (violating Section 35.41(b) of the Commission’s regulations requiring market-based rate sellers to provide accurate and factual information and prohibiting submitting false or misleading information or omitting material information in any communication with the Commission when counsel continued to ignore requirements to cooperate with ISO Market Monitoring Unit) and penalized entities providing different (and evolving) explanations for their conduct, thereby causing FERC Staff to expend resources pursuing those explanations, see e.g., Edison Mission, 123 FERC ¶ 61,170 (2008)(violating 35.41(b) of the Commission’s regulations in an investigation by making a series of representations and producing data and documents to staff regarding its supply offer strategy that, upon further explanation by Edison Mission, were revealed to have resulted in misleading staff.).