CFTC official benefiting from GFI acquisition battle

January 23, 2015 02:52 PM

In moving from the private sector to government, the newest Republican member of the Commodity Futures Trading Commission has acquired potential conflicts that ethics lawyers say could force him to stay away from matters involving major companies regulated by the agency.

J. Christopher Giancarlo joined the CFTC in June after working at a derivatives brokerage and serving as chairman of an industry lobbying group. Six weeks later CME Group Inc., the world’s largest futures exchange, made an offer to buy Giancarlo’s former employer. In short order, his old firm’s stock price surged, adding an extra windfall to Giancarlo’s multimillion dollar severance as he divested his holdings.

Giancarlo’s conflicts are emblematic of the CFTC’s shift from a sleepy overseer of agricultural contracts to a desirable place for Wall Street executives to try to influence regulation and burnish their resumes. The change can also be seen in high- paying jobs given to departing officials. Shortly after Giancarlo arrived, another commissioner, Scott O’Malia, left for a seven-figure position heading a derivatives trade association.

The CFTC “is like a stock and its value has gone through the roof,” said Jeff Connaughton, an ex-lobbyist who wrote an expose on the financial industry’s power in Washington. “The revolving door, therefore, is a brighter shade of green.”

$700 Trillion Market

That wasn’t the case before the 2010 Dodd-Frank Act gave the five-member commission responsibility for over-the-counter derivatives, a $700 trillion market that is a profit center for banks and also fueled the economic meltdown six years ago. The enhanced profile has helped the agency attract experienced staff, as well as prompted an exodus of CFTC employees.

More than a dozen top officials have departed for jobs in finance or law over the past 18 months as the regulator wrapped up most of its work on Dodd-Frank, including O’Malia, a Republican who became chief executive officer of the International Swaps and Derivatives Association.

Ethics rules bar O’Malia from appearing before the CFTC for two years. Giancarlo is subject to a two-year ban on matters involving his former firm, GFI Group Inc.

Giancarlo declined a request for an interview. In a statement, he said: “Throughout my tenure at the CFTC, I have and will continue to listen carefully to the advice of CFTC ethics staff to ensure that I fully comply with all regulations governing my transition from the private sector to public service.”

The commissioner plans to consult with CFTC ethics lawyers once the sale of GFI is complete to determine whether he should recuse himself from additional matters, his office said. GFI shareholders are scheduled to vote on CME’s offer later this month. A rival brokerage, BGC Partners Inc., has made a hostile bid that is pending as well.

$2.15 Million Payment

Along with a $2.15 million severance payment, Giancarlo’s employment contract called for GFI to speed up the vesting of almost 50,000 shares of restricted stock. As Giancarlo unloaded shares he owned during his first 90 days at the CFTC -- a timeframe allowed by ethics rules -- GFI’s stock price doubled on the news that the company was for sale.

Giancarlo’s office said most of the stock was sold automatically every 15 days under a plan he first set up in October 2013, about three months after President Barack Obama nominated him for the CFTC. The plan was then triggered after the Senate approved his nomination in June 2014, the commissioner’s office said.

“It was impossible for me to know or influence the timing of when the Senate would confirm me,” Giancarlo said in the statement. He added that he couldn’t have known “what would happen to GFIafter my departure.”

Former government ethics attorneys interviewed for this story said because Giancarlo profited from the merger activity, it would be prudent for him to recuse himself from matters that are specific to CME and BGC, as well as GFI.

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