In a reversal of course, the Commodities Futures Trading Commission’s Division of Enforcement has confirmed that it will no longer pursue omnibus orders of investigation by means of an “absent objection” procedure, and instead will seek Commission approval before extending such orders.
Last month, CFTC Commissioner Scott O’Malia issued a sharply worded objection to the Division’s use of the procedure. Commissioner O’Malia warned that, by using the “absent objection” process, the Enforcement Division could initiate and extend a broadly scoped examination indefinitely, and avoid a full Commission discussion and review of the legal and factual basis for the investigation. (See RS Client Alert: “CFTC Takes an Aggressive Enforcement Tack”) “It is imperative for the Commission to issue formal orders of investigation that are consistent with Congressional intent and that reflect the Commission’s collective opinion, based upon each Commissioner’s independent review of the merits of each request to authorize or extend investigations,” O’Malia said.
Seeking the omnibus order of investigation via such an absent objection procedure was one indication of the more aggressive enforcement stance the CFTC has taken since the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010. Its retreat from this practice signals that the CFTC will follow a more deliberative investigatory approach, where the Commissioners take an active role in assessing the legal and factual basis for bringing an investigation, controlling the scope of the investigation, and considering the potentially significant ramifications of exercising the Commission’s new enforcement authority. That said, when responding to the Enforcement Division’s announcement, Commissioner O’Malia reiterated his support of the Division’s efforts to “promptly and effectively investigate potential violations of the Commodity Exchange Act,” and promised to act swiftly when considering Enforcement Division investigatory requests.