Statements On Introduced Bills And Joint Resolutions

Floor Speech

BREAK IN TRANSCRIPT

By Ms. CANTWELL (for herself and Mr. NELSON, of Florida):

1682. A bill to provide the Commodity Futures Trading Commission with
clear antimarket manipulation authority, and for other purposes; to the Committee on Agriculture. Nutrition, and Forestry.

Ms. CANTWELL. Mr. President, I rise today to introduce the Commodities Market Manipulation Prevention Act of 2009.

When bad-actors like Enron and Amaranth Advisors, LLC, manipulate commodities prices, it means that Americans pay more for commodities like oil, gasoline, heating oil, food, and natural gas. Unfortunately, current law does not protect our economy with a tough enough standard to prevent, deter, and enforce illegal market manipulation in critical commodity futures markets.

Current law makes it very difficult for the Commodities Futures Trading Commission to prosecute market manipulation cases. This is because current law requires the CFTC to meet a more rigorous standard to prove market manipulation than other financial market regulatory agencies such as the Securities and Exchange Commission, the Federal Energy Regulatory Commission, and the Federal Trade Commission.

Specifically, the Commodities Exchange Act requires the CFTC to prove ``specific intent'' to manipulate. That is a very difficult standard to reach. You would have to have a pretty dumb individual to, for example, write in an e-mail that you specifically intend to manipulate prices. But that's what current law currently requires the CFTC to prove.

In addition, CFTC case law also requires that it prove an artificial price exists, that the defendant had market power to move the price, and that he or she actually did cause the artificial price. Particularly in today's complex markets, proving ``artificial price'' can be a daunting task, which more often than not comes down to a ``battle of the experts'' in court. Because these requirements are so onerous, the CFTC often ends up moving to a lesser charge of ``attempted manipulation,'' which requires only proving intent and some act showing that intent. This is still a high standard, but is much easier than proving a full manipulation case.

As a result, Federal courts have recognized that, with the CFTC's weaker anti-manipulation standard, market ``manipulation cases generally have not fared well.'' In fact, the standard is so weak that in the CFTC's 35-year history, it has only successfully prosecuted and won one single case of manipulation. That case is currently on appeal in Federal court.

The Securities and Exchange Commission, on the other hand, under section 10(b) of the Securities and Exchange of 1934, has a different, easier-to-prove manipulation standard that it has employed successfully for over 75 years. Basically, the SEC does not need to prove specific intent, as the CFTC does. The SEC just has to prove that the defendant acted ``recklessly.''

This legislation would give the CFTC the same anti-manipulation standard currently employed by the SEC. This means that the CFTC would be empowered to prove a manipulation case under the same ``reckless conduct'' standard that the SEC, FERC, and FTC employ, in contrast to its current difficult-to-prove ``specific intent'' standard. That is, this legislation will repeal the affirmative rule that says you are allowed to act recklessly in the commodity futures markets as long as you have no specific intent to do harm.

Congress also recently granted this same authority to the FERC in 2005 and the FTC in 2007 in legislation I wrote that carefully tracked section 10(b) of the Securities and Exchange Act of 1934 to ensure the FERC and FTC would interpret and enforce their new market manipulation authorities consistent with the SEC. This legislation also carefully tracks section 10(b) of the Securities Exchange Act of 1934 in part because Federal case law is clear that when the Congress uses language identical to that used in another statute, Congress intended for the courts and the Commission to interpret the new authority in a similar manner.

In the words of the Supreme Court from the 1904 case of Kepner v. United States, ``when a statute uses words whose meaning under the judicial decisions has become well-known and well-settled, it will be presumed that the Legislature used such words in the sense justified by long judicial sanction.'' In the 75 years since the enactment of the Securities and Exchange Act 1934, a substantial body of case law has developed over the last half century around section 10(b). This will provide certainty in how this legislation will be interpreted and applied by the Courts and the CFTC.

In fact, the Supreme Court has compared this body of law to ``a judicial oak which has grown from little more than a legislative acorn.'' So it's worth noting that courts have held that the SEC's manipulation authority is not intended to catch sellers who take advantage of the natural market forces of supply and demand; only those who attempt to affect the market or prices by artificial means unrelated to the natural forces of supply and demand.

In this country, our current standard in the futures arena just isn't working. It is not sufficient to fully prosecute and deter abuses in the markets. We need to get the right standard to prevent, deter, and enforce market manipulation in these markets.

Mr. President, I ask unanimous consent that the text of the bill be printed in the RECORD.

There being no objection, the text of the bill was ordered to be printed in the RECORD

BREAK IN TRANSCRIPT

Source