When an under-the-radar federal agency that regulates derivatives, the Commodity Futures Trading Commission (CFTC), launched an investigation into a U.S.-Canadian firm, its Republican commissioner, Caroline Pham, sounded the alarm. The investigation, she told the agency’s attorneys during an August 2023 meeting, was sloppy, full of “shortcuts,” and would ultimately result in a loss.
First, the agency ignored her. Then its union filed a complaint against her, arguing that her conduct at the meeting was “intimidating” and “abusive.” Eventually, the agency voted to advance the investigation, filing a complaint against the firm, Traders Global Group Inc., that contained typos, factual errors, and false statements. In Nov. 2023, the investigation ended—followed in May of this year by a $3.2 million penalty against the CFTC for what a federal judge said were “numerous instances of sanctionable behavior.”
The revelations, many of which have not been reported, reflect the agency’s dysfunction under the Biden administration. They also come at a pivotal time for the CFTC, which is poised to take a larger role in the regulation of the cryptocurrency industry, a massive undertaking that will bring even more scrutiny to the agency’s enforcement work.
According to transcripts, Pham brought up several concerns about CFTC enforcement attorneys’ work product on the Traders Global case and asked why attorneys were in such a rush to move forward with the case.
“I don’t know why we have a gun to our head, that we don’t take the time to get it right and to make sure that the papers are complete and accurate before the Commission is called to vote on, you know, what I see as a deficient administrative record,” she said.
Instead of conducting a top-to-bottom review of the case as Pham urged, CFTC commissioners voted to advance the investigation. The complaint the agency ultimately filed against Traders Global contained typos, factual errors, and false statements about evidence.
Her warnings were realized in dramatic fashion six days later, when the little-known agency’s attorneys submitted a court filing to freeze the bank accounts of Traders Global and its founder, Murtuza Kazmi. CFTC lawyers alleged that Traders Global’s wire transfers from a Cayman bank account were evidence of fraud.
In reality, the transfers were tax payments to Canadian tax authorities. The Ontario Securities Commission had sent an email to the CFTC “clearly stating” that the wire payment was for taxes, but the agency’s attorneys either missed or ignored the message. When the CFTC discovered the omission—after freezing Traders Global’s assets—they deliberated about whether to disclose the error to the court.
Judge Jose Linares excoriated the CFTC in May after evidence emerged that the agency’s attorneys tried to hide the exculpatory evidence, saying CFTC lawyers took “deliberate steps down a path of obfuscation and avoidance.”
An attorney for Kazmi and Traders Global said the firm hopes CFTC will “use this case as an opportunity to right the ship and restore the public confidence in the Commission.”
“As defense counsel, it was our job to bring the CFTC’s troubling conduct to light. But what was remarkable in this case is that the CFTC’s own client, a sitting Commissioner, also sounded the alarm bell, both at the outset of the case and thereafter,” said Robert Zink, a partner at Quinn Emanuel. “This sort of discourse, debate, and pressure-testing is healthy and should be welcomed internally by any agency.”
The CFTC would likely have avoided the embarrassing turn of events had it heeded Pham’s warnings back in August 2023, according to a report from Shaw Bransford & Roth, the law firm hired to investigate the union’s complaint against the commissioner.
“[Pham] was holding the responsible attorneys accountable for their professional performance on the eve of an enforcement action being taken,” the report says. “That scrutiny was not objectively offensive during the 2023 meetings, and it is not objectively offensive now, viewed in the aftermath of the litigation at issue in the August 11, 2023, meeting, where uncorrected errors resulted in sanctions that were fatal to the enforcement action.”
While CFTC faces scrutiny ahead of its potential assumption of cryptocurrency regulation, this is also a tumultuous time for federal employee unions. President Donald Trump has canceled contracts with unions at numerous federal agencies, a decision recently upheld in federal circuit court.
The CFTC’s union in particular is on the hot seat after the commission’s inspector general found that agency risk analyst Malcolm Alexander-Neal, a longtime union head, defrauded taxpayers by living and working in Mexico City and lied about it to investigators. Alexander-Neal is a leader at National Treasury Employees Union (NTEU) chapter 337, the same chapter that filed the unsuccessful complaint against Pham.
The NTEU did not respond to a request for comment.
