Last week, an advisory committee to the Commodity Futures Trading Commission produced a highly dubious report recommending that the agency abandon the Dodd-Frank mandate of setting position limits in futures markets to eliminate excessive speculation. The report was just an enhanced form of lobbying; eight of the nine members of the Energy and Environmental Markets Advisory Committee (EEMAC) have ties to industries that would personally benefit from killing the rule.
The big question was how an official advisory committee of a federal agency could turn into a purely distilled conduit for corporate talking points? And the answer is Christopher Giancarlo, the lone Republican commissioner on CFTC at the moment, who took advantage of the committee, twisted it to his own ends, and produced a work product destined to be used in future litigation to overturn the position limits rule.
This all came out in a meeting of the EEMAC last Thursday, the same day the report was released. Only a few outlets reported on the meeting, and there’s no archived video of it yet on the CFTC website; it should pop up at some point. But Tyson Slocum of Public Citizen, the only consumer/public interest voice on the committee and the lone dissenter on the report, gave me the blow-by-blow.
Slocum started the discussion in the committee by questioning Craig Pirrong, co-author of the report and a non-member at the time he wrote it (he only became a member afterward). Pirrong has a history of payments from multiple industry groups, including the International Swaps and Derivatives Association, who successfully sued to overturn the first iteration of the position limits rule (that was in 2012; this second version was written in 2013 and still has yet to be finalized).
“I asked him what were the origins of that report, and how did it come to be that a non-member worked with one of the nine members of the committee without the input of the other eight,” Slocum told me in an interview. “And Dr. Pirrong said, Mr. Giancarlo asked me to write a report. It took all of seconds of interrogation to have him throw Giancarlo under the bus.”
Giancarlo immediately interrupted Pirrong, saying he wanted to explain. Over the next few minutes, Giancarlo admitted that he called Pirrong, set the parameters of the report, and told him to have it reflect only what had been discussed in two meetings where practically no non-industry voices were present. Giancarlo added that he sought out Pirrong for the report because of his “expertise on the issue,” effectively admitting that he was making decisions for the committee. Slocum asked Giancarlo why he wasn’t consulted to provide input on what was supposed to be a full committee report. Giancarlo replied that the other members of the committee were very busy, and “I didn’t want to burden you.”
You might be asking why Giancarlo, a CFTC commissioner, would play such a powerful role in devising a report that is supposed to be a way for independent voices advise the commission from the outside. Well, a few things came together. First, Dodd-Frank Section 751 created the EEMAC. It clearly had good intentions, as evidenced by the requirement that members reflect “a wide diversity of opinion” and “represent a broad spectrum of interests, including hedgers and consumers.” But the bill also explicitly exempted the EEMAC from the Federal Advisory Committee Act. That means there was no outside oversight of the committee membership, or whether eight of the nine members would come from a particular industry.
To “remedy” that, CFTC wrote a charter for the EEMAC. This is the key section:
The EEMAC shall have a “Sponsor,” who may be the Chairman of the Commission, a Commissioner, or a designee of the Commission. The Commission shall appoint and remove the Sponsor of EEMAC.
The Sponsor’s role for this non-FACA committee shall be, among other things, to: (1) approve all meeting agendas; (2) approve or call all EEMAC or subcommittee meetings; (3) attend all EEMAC or subcommittee meetings; (4) adjourn any meeting when he or she determines it to be in the public interest; (5) ensure that recommendations and advice made by Members are provided to the Commission; (6) ensure that the Commission provides the necessary staff and other support for the EEMAC; (7) assist the Commission with identifying Members, Associate Members, and subcommittee members; and (8) otherwise assist the Commission with carrying out its responsibilities regarding the EEMAC.
The sponsor, the charter also notes, plays a “primary” role in selecting members of the committee.
You can fill in what happened from there. Giancarlo, a former executive at a derivatives brokerage firm and an on-the-record opponent of position limits, found this Dodd-Frank provision lying around and became the EEMAC sponsor. That allowed him to slot in his industry pals. And he clearly took a very hands-on role in everything the committee does, including telling them when and how to write their reports.
This goes well beyond the enumerated role of the sponsor, as seen above. It’s a ministerial role, not an active member of the committee. It isn’t Giancarlo’s job to produce the report, or to set the vision for it, or to designate individuals to write it separate from the rest of the committee. Incidentally, when Pirrong and his co-author, longtime ConocoPhillips exec James Allison, finished the report, they didn’t submit it to the committee, but to Giancarlo. He passed it onto committee members and told them they had two weeks to vote up or down on it in private.
It’s important to understand Giancarlo’s goal for the report. He doesn’t think the advisory committee will sway the CFTC to abandon position limits they’ve been working on for years. Indeed, CFTC Tim Massad immediately said he would keep moving forward on the rule. The goal here, as Slocum told me, is to give industry a leg up in an inevitable legal battle to come. “Giancarlo was setting the table,” Slocum said, “to use the advisory committee from the beginning, stack it with Wall Street and big energy companies, and produce a report to say position limits are unneeded and would create harm. This report would be exhibit A in the next litigation.”
The industry, of course, has already won one round in court here, back in 2012. They successfully argued that capping trades as a percentage of the total commodity market was “unnecessary.” Now, after CFTC finalizes a new version of the rule that tries to answer that judge’s concerns, the same industry players can go to court again and say “Look, even the commission’s own advisory committee said this was unnecessary!” A federal judge would likely be unaware of the ideological makeup of the committee, the role of the CFTC’s industry-backed commissioner in creating the report, the lack of objectivity, etc. They’d only see the 8-1 vote.
Meanwhile, that vote was never public. Slocum made several formal motions at the meeting to move the report back to the EEMAC for further consideration, given that it only employed selective committee resources without the consent of the full committee at the time. The motion was never acknowledged or acted upon. Nor was there ever a public vote to deliver the report to the CFTC; the 8-1 vote only approved the draft. And there are other factors as well; clearly, Giancarlo violated the charter in his sponsorship role.
If the report is not validated as the official product of the committee, it cannot be used in court the way Giancarlo and his cronies want. Public Citizen is working to make that happen.
The thing is, Giancarlo had already stacked the committee. He could have gone through the normal procedures, engaged Slocum, and outvoted him. Instead he pushed way too far. “It’s like Nixon didn’t need to break into the Watergate, he was going to win in a landslide anyway,” Slocum said. “Sometimes these guys can’t help themselves.”