CFTC Commissioner Drama and My Forex Funds Case: "Government Lawyers Can't Afford to Slip"

Commodity Futures Trading Commission (CFTC) Commissioner Caroline D. Pham bravely shared her statement following the Sanctions Motion filed by My Forex Funds (MFF). She expressed her deep disappointment with the blatant misrepresentations of facts that CFTC staff members made in court. Nevertheless, she was “not surprised”.

Her comments last week highlighted the actions of the regulatory agency in a specific case against MFF and its CEO, Murtuza Kazmi. The timing of the criticisms was also interesting. The court is about to rule on whether to impose sanctions against the CFTC, as requested by the prop trading firm.

Unethical Conduct by a Government Agency

Every once in a while, defence attorneys representing clients in enforcement proceedings encounter unethical conduct from lawyers representing governmental agencies. This happens in the United States and other countries. It is always very disappointing and concerning. However, a defendant and their lawyers rarely decide to proceed with a sanctions motion.

Again this is from one of the CFTC’s own commissioners, Caroline Pham. She believes the CFTC took a “ready, shoot, aim” approach to some of the charges filed against MFF and “is engaging in an unprecedented overreach” pic.twitter.com/7Bri9TfHZS

— MD Financial Skills (@MDiamondFinance) July 3, 2024

Enforcement proceedings are always a significant challenge. Further annoying the government by filing a sanctions motion is not a move that most defendants would be willing to make. This is even more true for the defence bar.

The lawyers are typically “Repeat Players”. They have ongoing relationships with government lawyers and are usually unwilling to jeopardize such a relationship for any specific matter. This is why the motion filed by MFF is especially important. It reveals how MFF's counsel tried to get the CFTC enforcement staff to correct their misrepresentations of facts and unethical conduct, but encountered a clinical and condescending response. There was zero accountability. Unfortunately, this too will not come as a surprise to defence attorneys, who every once in a while run into similar situations.

Government Lawyers Put Agency’s Integrity at Stake

Enforcement agencies hold a great amount of power. As Uncle Ben told young Peter Parker: “With great power comes great responsibility.” That means the government lawyers cannot afford to slip. They cannot be allowed any wiggle room when it comes to their integrity, because this isn't just about their personal integrity. It's about maintaining the integrity of the governmental agency they serve and the sovereign nation it represents.

For this reason, the motion is crucial, and therefore it triggered Commissioner Pham’s statement. She reiterated the importance of integrity and ethical conduct by government lawyers. She urged an agency response that strives to even partially meet the standards of internal investigations and audits that the CFTC demands of its supervised entities. Things shouldn’t have come to this.

The CFTC enforcement division should have taken these allegations more seriously. It should proactively have taken responsibility for cleaning up intentional misrepresentations of facts. It hasn’t, and now it needs to answer to the court.

Courts typically favour the government, but in this case, the court must hold the CFTC accountable for its wrongdoing. Especially in enforcement cases, the judicial system has to be perceived as fair. When the enforcement agency doesn’t play fairly in one case, it creates a huge dent in the public’s trust across the board. Commissioner Pham’s statement is an important step in the right direction, which the CFTC enforcement division must continue.

Hi, friends! Another dull update in #myforexfunds vs the #cftc. Yesterday, the CFTC submitted a letter to Judge Linares further arguing that they shouldn't have to provide some of the docs MFF wants.

The judge still has until July 15 to decide which docs the CFTC must produce pic.twitter.com/nvUssBoiVF

— MD Financial Skills (@MDiamondFinance) June 19, 2024

The Impact on MFF’s Ongoing Case

Another interesting question is how this fiasco will impact the legal proceedings against MFF.

From a formal legal point of view, CFTC staff made these alleged misrepresentations of facts in an attempt to obtain a restraining order against the defendants in the MFF case. This is a separate proceeding, with a very specific objective (freezing assets). Theoretically, it does not address the many questions of law and fact that will be addressed in the main proceedings.

That being said, the CFTC has lost a very important element that plays a crucial role in every enforcement action – credibility. The new CFTC legal team will undoubtedly have to fight the case with a big shadow looming over them. It is difficult to gauge exactly how this new situation will impact the proceedings. However, people don’t like to be lied to and have a hard time forgetting after someone tries to deceive them.