November 12, 2019

November 11, 2019

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CFTC Will Have Enhanced Enforcement Powered by In-House Market Surveillance

CFTC Acting Chairman Chris Giancarlo recently announced some organizational changes within the CFTC’s Divisions that will enhance the agency’s ability to investigate market abuse. Further, Acting Chairman Giancarlo recently announced the appointment of federal prosecutor James M. McDonald as the agency’s new Director of Enforcement. Covington’s Futures and Derivatives group provides our initial thoughts on what these changes mean for the Enforcement Division along with background on Mr. McDonald.

Acting Chairman Giancarlo recently announced that the market surveillance function of the CFTC will be moved from the Division of Market Oversight into the Enforcement Division—this change should be fully implemented in the upcoming months. This move is intended to enhance the Enforcement Division’s ability to investigate and prosecute market disrupting behavior — such as price manipulation, fraudulent schemes, and spoofing — in the futures and swaps markets.

The announcement of Mr. McDonald’s appointment as Director of Enforcement, though rumored for months, officially came yesterday. It is expected that Mr. McDonald will begin his tenure at the CFTC very soon, perhaps as early as next week. With this appointment, the CFTC continues the recent trend of former criminal prosecutors leading the Division.

Background on McDonald

The new Enforcement Director initially will focus on an assessment of the Enforcement Division program and the conclusion of old cases. Going forward, the Director and the Enforcement Division, as well as the entire CFTC, will concentrate on implementing the Acting Chairman’s agenda to create an agency that regulates smarter and more efficiently. This does not mean the new Enforcement Director will reduce the overall activity of the Division. Rather, it is expected that the CFTC will continue its emphasis on robust enforcement. Indeed, Acting Chairman Giancarlo has stated that “Jamie McDonald’s appointment as the Director of the Enforcement Division is a signal to those who may seek to cheat or manipulate U.S. markets that there will be no pause, no let up and no relaxation in the CFTC’s mission to enforce the law and punish wrongdoing.” However, we do expect to see a reduction in the CFTC’s recent push to bring cases involving simple rule violations because this does not coincide with the Acting Chairman’s goals to right-size the agency and to best use scarce resources.

James M. McDonald has been an Assistant U.S. Attorney for the Southern District of New York since 2014. Previously, Mr. McDonald was a litigation associate at Williams & Connolly LLP and a law clerk for Chief Justice John G. Roberts, Jr. of the Supreme Court of the United States for the October 2009 Term. From 2008 to 2009, Mr. McDonald was a Deputy Associate Counsel at the White House, and, from 2007 to 2008, he served as a law clerk for Judge Jeffrey S. Sutton of the United States Court of Appeals for the Sixth Circuit. Mr. McDonald received his bachelor’s degree from Harvard University and his J.D. from the University of Virginia School of Law.

As an Assistant U.S. Attorney for the Southern District of New York, Mr. McDonald has prosecuted a number of individuals for violent crimes, illegal narcotics, firearm offenses, and racketeering. He has also been involved in several high-profile cases, including the prosecution of Sheldon Silver, the former New York State Assembly Speaker who used his official position to receive millions of dollars in bribes and kickbacks in exchange for official acts. Mr. McDonald has also prosecuted individuals involved in the violent street gangs “Young Gunnaz” (or “YGz”) and “18 Park” for murder, narcotics, racketeering, and firearm offenses, among other things. In addition, Mr. McDonald has prosecuted individuals associated with the Genovese Organized Crime Family of La Cosa Nostra and is also on the prosecution team for Roberto Ponce-Rocha, who was extradited from Colombia for drug trafficking charges in late 2016.

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About this Author

Anne M. Termine, Covington, securities litigation attorney
Of Counsel

Anne Termine is a member of the firm’s Global Futures and Derivatives Practice and leads the Derivatives Enforcement Team. She is also a member of the white collar defense and investigations practice. Ms. Termine advises clients in handling internal investigations and regulatory enforcement inquiries related to the derivatives markets and the cryptocurrency markets.

Prior to joining Covington, Ms. Termine was a Chief Trial Attorney in the U.S. Commodity Futures Trading Commission's (CFTC) Division of Enforcement, where she was responsible for investigating and...

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James Kwok, Covington Burling, Corporate Lawyer, Investment Banking
Associate

James Kwok provides advice to financial institutions, asset managers and commercial entities with respect to derivatives. He also regularly represents clients on a wide range of regulatory and policy matters, including with respect to federal securities law, the Investment Advisers Act, and the Commodity Exchange Act.

Mr. Kwok also has passed all three levels of the Chartered Financial Analyst exams.

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