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Proceedings before the Commodity Futures Trading Commission; Final Rule (CFTC - Fed. Reg. Version) (with Zwirb Comment)
February 26, 2013

The CFTC is amending its Rules of Practice, Rules Relating to Reparation Proceedings, and its Rules Relating to Review of National Futures Association ("NFA") Decisions in Disciplinary, Membership Denial, Registration and Membership Responsibility Actions, largely with respect to various procedural issues.  More significantly, the CFTC is also amending its Rules Relating to Reparations Proceedings to expand the authority of its Judgment Officers.

Effective Date: February 26, 2013.

Cross-Reference(s): CFTC Rules Parts 10 ("Rules of Practice"), 12 ("Rules Relating to Reparations"), and 171 ("Rules Relating to Review of National Futures Association Decisions in Disciplinary, Membership Denial, Registration and Member Responsibility Actions"); Authority of Judgment Officers to Hear Cases; Final Rule (77 FR 63187).

Zwirb Comment: The last part of the summary, relating to the authority of Judgment Officers, relates to actions by the CFTC that have for the most part escaped public notice.  In 2011, the CFTC eliminated its Administrative Law Judge ("ALJ"), leaving it with only a Judgment Officer ("J.O.") to decide administrative cases and, more importantly, to make administrative case law.  The problem that the CFTC faced in the wake of this action was that J.O.s were not authorized, and arguably not trained, to hear such cases (they had been used primarily to decide reparation cases involving modest levels of damages).  To attempt to remedy this, at least from a procedural perspective, the CFTC in October 2011 amended Part 12 of its rules to authorize its J.O.s to conduct formal decisional proceedings.  The new Part 12 amendments issued in the attached release, according to the CFTC, conform the definition of ''Judgment Officer'' to the authority of Judgment Officers to conduct formal decisional proceedings.  The stated rationale for these actions is "to promote the efficient use of the Commission's budget and personnel resources."

The elimination of the CFTC's only ALJ and the transfer of his function to a less trained J.O. is unusual.  From a policy perspective, the action raises concerns that the CFTC, as an expert regulatory agency, will no longer have a qualified presiding officer to develop its administrative case law, an important source of agency expertise that is relied upon by the courts.  It also raises concerns with respect to the qualification of the presiding officer, since a J.O. does not require a law degree.  From a legal perspective, the CFTC's action also raises concerns regarding whether reliance upon J.O.s to perform duties formerly conducted by ALJs satisfies the requirements of the Administrative Procedure Act, especially for matters involving registration and statutory disqualification (Part 3 of the CFTC's rules) and enforcement adjudication.  These issues attracted the notice of the Federal Administrative Law Judges Conference which, on February 6, 2013, issued a letter of inquiry to CFTC Chairman Gensler as to whether "parties subject to agency action are being deprived of an APA safeguard for an independent adjudication."

See: 78 FR 12933.

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