CFTC-SEC agreement seeks to address ‘Bad Actor Disqualification’ dilemma - 29 October 2020

The CFTC and SEC chairmen have signed a joint letter establishing a pilot program to take on problems created by the statutory disqualification provisions of SEC Regulations A and D.

CFTC Chairman Heath Tarbert Chairman and SEC Chairman Jay Clayton have executed a joint letter agreement to address certain complications that have arisen in CFTC enforcement matters as a result of the SEC "bad actor disqualification" provisions contained in SEC Regulations A and D of the Securities Act of the 1933. The chairmen’s letter establishes a one-year pilot program to set out and formalize the practice and agreement between the Chairmen relating to CFTC orders that implicate the statutory disqualification provisions under SEC regulations.

SEC rules complicate CFTC enforcement efforts. According to the CFTC’s press release, the letter arises as a result of a request by the CFTC Chairman Tarbert to create such a pilot program. Notably, in some recent CFTC enforcement matters, CFTC commissioners have commented that the SEC regulations which provide for automatic disqualification for certain Commodity Exchange Act violations have complicated the CFTC’s ability to settle its own enforcement cases without engaging in extensive litigation. Moreover, these SEC rules, which put the CFTC in a difficult position, were not mandated by statute.

Letter provisions. The joint letter notes that at times, with notice to the SEC and where appropriate, the CFTC has included in its orders language advising the SEC that disqualification should not arise as a result of a particular CFTC final order. The joint letter recognizes this practice may continue in the future. Additionally, the letter provides that the agencies will use their reasonable efforts to formalize and memorialize the coordination of their respective staffs with respect to CFTC orders that implicate the SEC’s disqualification rules.

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