The swaps industry lobbying group said Scott O’Malia, the U.S. regulator it hired to be chief executive officer, will limit his role in a lawsuit against the Commodity Futures Trading Commission he is leaving.
O’Malia, the longest-serving member of the CFTC, said this week he plans to leave the commission Aug. 8. He’ll join the International Swaps and Derivatives Association as CEO 10 days later, according to an ISDA statement today. ISDA is among three Wall Street lobbying groups that sued the CFTC in December, seeking to curb the overseas reach of its rules and rein in a regulatory barrage by former Chairman Gary Gensler.
O’Malia, 46, is the latest government regulator to be hired by the industry he oversaw. Allston Holdings LLC, owner of a high-frequency trading firm, yesterday appointed former CFTC Commissioner Jill Sommers to serve on its board of managers, according to a company statement.
“It’s breathtaking that he’s accepting the position while he’s still in his position at the CFTC,” said Jeff Connaughton, who served as chief of staff to Senator Ted Kaufman, a Delaware Democrat, and is author of “The Payoff: Why Wall Street Always Wins.” “There is absolutely no shame in it or any price to pay for it.”
There are “rules regarding interaction of former federal employees with the U.S. government,” Steve Kennedy, an ISDA spokesman, said in an e-mailed response to questions.
The lawsuit, filed in federal court in Washington, seeks to overturn guidance the CFTC approved in July 2013. The trade associations, which represent Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM), Deutsche Bank AG and other swap dealers, say the agency illegally set regulations by issuing guidance documents and staff advisories rather than formal commission-approved rules.
“I will make sure that, working with our ethics advisers at the commission, I will follow the spirit and letter of the law that’s required of me” once he joins ISDA, O’Malia said in a phone interview. Because he’s been a sitting commissioner during the time ISDA approached him about the job about a month ago, “I’ve recused myself from all votes and decision matters,” he said. “I won’t attend any meetings.”
In April, former CFTC Commissioner Bart Chilton joined the law firm DLA Piper as a senior policy adviser in its Washington office. Chilton will assist the firm’s cross-border team in understanding issues related to comparable regulations in different jurisdictions and to enhance access to key decision-makers, Marc Horwitz, head of DLA Piper’s derivatives practice unit, said in an April statement.
In March, former Securities and Exchange Commissioner Troy Paredes joined PricewaterhouseCoopers LLP. In an interview at the time, he said he will be based in the auditor and consultant’s Washington office, working for clients that include banks, asset-management firms and insurance companies.
Paredes said his job, with the official title of senior strategy and policy adviser, won’t include lobbying. Pricewaterhouse has hired other SEC officials in recent years, including Kayla Gillan, who was an adviser to then-Chairman Mary Schapiro. The firm’s head of government affairs, Laura Cox Kaplan, was a senior aide to SEC Chairman William Donaldson.
“It’s a permanent class in Washington which basically has a gift waiting for it,” Connaughton said. “If you’re a senior government official you can start test driving Porsches in your final days in office.”
In June, John Ramsay, who’d been acting director of the SEC’s Division of Trading and Markets until February, joined IEX Group Inc., where he is chief market policy and regulatory officer. Ramsay will develop relationships with industry and regulatory stakeholders, and oversee IEX compliance obligations, particularly as it shifts from a dark pool to a public exchange, IEX said in a statement.
“This is not a revolving door move but choosing a completely different door,” Ramsay said in an e-mail today.
O’Malia said the practice of U.S. regulators joining companies in the industry they oversee “is nothing new.” Ethics rules are in place to ensure proper conduct, he said. “These are experienced, talented people who can provide advice and counsel,” he said.
Senior government officials simply should be prohibited from working directly or indirectly for anyone they regulate or oversee for at least two years, according to Dennis Kelleher, president and CEO of Better Markets Inc., a group advocating stricter government regulation in financial markets.
“It’s influence-peddling at its worst,” Kelleher said today in a phone interview. “Both because no one knows better how to influence an agency than somebody who was in a senior position at the agency,” Kelleher said.
The ISDA lawsuit against the CFTC -- filed by the group along with the Securities Industry and Financial Markets Association and the Institute of International Bankers -- is among a series of Wall Street challenges to U.S. efforts to reshape financial regulation after the worst economic collapse since the Great Depression. The 2010 Dodd-Frank Act gave the CFTC power to bring swaps, which have been traded behind closed doors for decades, under U.S. oversight for the first time.
Bloomberg LP, the parent company of Bloomberg News, operates a swap-execution facility regulated by the CFTC.
The case is SIFMA v. U.S. CFTC, 13-cv-1916, U.S. District Court, District of Columbia (Washington).
To contact the editors responsible for this story: Nick Baker at firstname.lastname@example.org Michael P. Regan