Each of the four “Unregistered Entity Sweep” matters before the Commodity Futures Trading Commission[1] today seeks a cease-and-desist order and uses the Commission's administrative process to avoid bringing these charges in the federal courts.  I respectfully dissent from the Commission’s use of administrative proceedings to bring an unregistered futures commission merchant (FCM) charge without identifying any relevant facts to support that charge.

The recent U.S. Supreme Court decision in SEC v. Jarkesy[2] raises the level of scrutiny that any agency, including the Commission, should apply before employing the use of administrative proceedings.  In each of these four matters, I am concerned that there is insufficient evidence that the proposed respondent was acting as an FCM.  Specifically, while there may be sufficient evidence that the proposed respondent engaged in soliciting or in accepting orders for the relevant types of transactions, there is no evidence that the proposed respondent accepted money, securities, or property (or extended credit in lieu thereof) to margin, guarantee, or secure those trades or contracts.[3]

FCMs are vital intermediaries in our markets and serve as critical agents to their customers in facilitating the execution and clearing of derivative transactions.  They are distinct from designated contract markets or swap execution facilities which execute derivative transactions, and from derivatives clearing organizations that clear derivative transactions.  They are also distinct from other intermediaries, such as commodity pool operators, commodity trading advisors, introducing brokers, and swap dealers.  Just because a person or entity may purport to accept money for a derivative transaction does not necessarily mean that it should be registered as an FCM or that an enforcement case should be brought against it if it did not do so.  This requires a deeper analysis, and, more importantly, evidence that the person or entity actually engaged or purported to engage in activity that meets the required elements of the FCM definition.

While I support acting to stop entities from falsely claiming that they are registered with the Commission, I cannot support the unregistered FCM charges in this sweep without additional evidence.  Furthermore, when our Division of Enforcement utilizes administrative avenues to bring its cases, it must do so with careful and thorough consideration of the underlying evidence to ensure that any succeeding decisions under those cases by presiding officers or other administrative judges are limited to only those appropriate under the law.  Therefore, I dissent.