CFTC Refers Forged Letters to Justice Department

The CFTC's Gary Gensler
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC). Photographer: Andrew Harrer/Bloomberg

The U.S. Commodity Futures Trading Commission has referred forged comment letters it received on a proposed derivatives trading rule to the Justice Department, CFTC chairman Gary Gensler said today.

A Boston-based public relations firm, the Dewey Square Group, confirmed yesterday that it had been hired to send comment letters to regulators on behalf of a client it wouldn’t identify. The firm said it didn’t know that the letters were fraudulent and blamed a subcontractor, Little Rock, Arkansas-based Goggans Inc.

Nasdaq OMX Group Inc. was among the financial companies that lobbied Congress on the issue raised in the letters, ownership of derivatives clearinghouses, during the debate over the Dodd-Frank financial regulatory overhaul last year. Nasdaq’s chief spokesman said yesterday that the company would have no comment on whether it had hired Dewey Square.

Bloomberg News reported Nov. 29 that forged comment letters purportedly from an H.J. Heinz Co. executive, a Burger King Co. franchise and at least five other Arkansas-based officials or businesses were sent to the CFTC.

“We have removed the identified letters from the comment files and have referred the matter to the Justice Department,” Gensler said in remarks prepared for a meeting of the commission today. “We are working to ensure the integrity of the process.”

False Statements Act

The letters violate the federal False Statements Act, said Ronald M. Jacobs, an attorney at Venable LLP. The act makes it a felony to send false statements to regulators.

“It would pretty clearly apply to a forged comment letter to a government agency, and so there are fines and prison terms that could be associated with that crime,” Jacobs said.

Dewey Square Group ran a multistate grassroots advocacy campaign and hired Goggans to help build support, Ginny Terzano, principal of Dewey Square, said yesterday. Dewey Square hired Goggans between the middle of October and the middle of November, she said.

“Dewey Square had no reason whatsoever to believe that the letters were not authentic and had no knowledge that they were in fact unauthorized until questions were raised in media accounts,” Terzano said in a statement.

The forged letters were sent by a contractor for Goggans, said Miles Goggans, the firm’s founder.


The fraudulent letters to the CFTC were critical of banks for their “cartel-like control” of the $583 trillion swaps market. The letters were in response to a CFTC proposal to limit conflicts of interest in clearinghouses and trading platforms in the swaps market. Dewey Square said some letters also were sent to the Securities and Exchange Commission, which is considering similar rules.

Nasdaq, which is a majority owner of a swap clearinghouse, International Derivatives Clearing Group LLC, hired Michael Oxley, former chairman of the House Financial Services Committee, in November 2009 to lobby on legislation sponsored by Representative Stephen Lynch, a Massachusetts Democrat, to cap ownership stakes in clearinghouses, according to congressional records.

Michael Greenberger, a University of Maryland law professor and former CFTC official, said Nasdaq made it clear during the debate over Dodd-Frank that it wanted to see limits on banks’ ownership of clearinghouses.

‘Big Financial Question’

“They clearly were in favor of a more free and open control of these institutions,” Greenberger said. “This is a very big financial question as to who is going to claim victory in the fight over the way Dodd-Frank will be implemented.”

Nasdaq company declined to discuss whether it had hired Dewey Square. “We have no comment on this,” Frank DeMaria, senior vice president of corporate communications at Nasdaq, said in an e-mail yesterday.

Terzano said in an interview that Dewey Square does not disclose its list of clients. “Dewey Square works for many coalitions, nonprofits, businesses and organizations,” she said.

In a separate statement, Goggans said he had been unaware of the forgeries.

“This action was the sole doing of a subcontractor of mine who has worked for me only this past year,” Goggans said. “I deeply regret what this has done to these Arkansas businesses and individuals, and deeply regret that this inexcusable conduct occurred in the course of work I performed for Dewey Square, a firm that has the highest standards of professionalism and ethics.”

Former Senate Aide

According to his website, Goggans was an aide to former Arkansas Senator David Pryor, a Democrat, working on agriculture issues. Goggans’s site includes a photo of him standing next to Pryor’s son, incumbent Arkansas Senator Mark Pryor, in hunting gear at what is described as an east Arkansas dove hunt.

The site says Goggans has been lobbying since 1993. “A single word describes our attitude about relationships and our success,” the site says. “Trust.”

The fraudulent letters were among more than 150 comments sent to the CFTC on the swaps clearinghouse proposal, which stems from the Dodd-Frank finance-regulatory overhaul enacted in July.

Identical Language

The letters contained nearly identical language and included signatures from Arkansas public officials, including Dallas County Sheriff Donny Ford and Washington County Judge Marilyn Edwards.

Edwards has turned the matter over to the Federal Bureau of Investigation, said George Butler, the civil attorney for Washington County. Butler said falsifying letters from a public official is a felony under Arkansas state law.

“It does appear to constitute forgery,” he said.

Political campaigns, public relations firms and consultants sometimes use form letters to generate apparent grassroots support for their points of view from individuals, small businesses and citizen groups.

A case of fraudulent letters surfaced a year ago during the debate over energy and climate change legislation. U.S. Representative Edward Markey, a Massachusetts Democrat, said at a hearing on Oct. 29, 2009, that his investigators found more than a dozen forged letters sent to U.S. lawmakers as part of a campaign run by the Washington-based political consulting firm Bonner & Associates, under contract with the American Coalition for Clean Coal Electricity.

Legal Exemption

No charges have been filed in the matter. Jacobs, who advised the ACCCE at the time, said the False Statements Act exempts letters sent to Congress.

The derivatives rule in question was proposed in October by CFTC commissioners, who requested public comments by Nov. 17. The CFTC must complete a rulemaking by Jan. 14.

Derivatives are financial contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.

The Dodd-Frank law aims to move over-the-counter swaps trades to clearinghouses, in order to reduce risk in the financial system by requiring parties to post collateral. The law directs regulators to write rules for the clearinghouses to limit conflicts of interest.

Restricted Companies

The CFTC’s proposed regulation would allow clearinghouses to choose between two types of ownership restrictions. Under the first, there would be a 20 percent cap on a clearinghouse member’s equity stake or voting control and a 40 percent cap on the collective stake that members and restricted non-member companies could hold in one clearinghouse.

The restricted companies would include bank holding companies with at least $50 billion in assets, non-bank financial companies supervised by the Federal Reserve, swap dealers, major swap users and their affiliates.

The second option would impose a 5 percent cap on the ownership stake and control any clearinghouse member or non-member could have. The second option wouldn’t include an aggregate cap.

The Securities Industry and Financial Markets Association, which represents banks, securities firms and other companies, said in a Nov. 12 comment letter to the CFTC and the SEC that it does not believe there is a requirement in the law for regulators to impose aggregate ownership limits.

‘Beyond What Is Necessary’

The proposed regulations “go beyond what is necessary to effectively mitigate conflicts of interest, and would have the effects of limiting access to necessary capital and stifling innovation,” the association said in the letter.

Bloomberg LP, parent of Bloomberg News, intends to register as a swap execution facility, Ben Macdonald, global head of fixed income at Bloomberg LP, said in a Nov. 17 comment letter to the CFTC on the proposed regulation. The Bloomberg LP letter doesn’t comment specifically about the proposed ownership limits for clearinghouses.

The seven forged public comment letters identified by Bloomberg News oppose the second part of the proposal.

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