Congressional Democrats Side with CFTC in SIFMA v. CFTC

Nineteen Congressional Democrats filed a Motion for Leave to file an amicus brief in support of the CFTC’s issuance of Cross-Border Guidance, SIFMA v. CFTC, No. 13-cv-1916 (ESH).  The amici oppose relief sought by a group of trade associations challenging the CFTC’s Cross-Border Guidance (“Guidance”).  Should the trade associations prevail, the Democrats argue, it would “allow swaps-market participants to evade United States regulation of almost the entire global swaps market by the expedients of trading swaps through foreign subsidiaries or booking swaps on foreign trading desks or exchanges.”

The Congressional Democrats’ proposed amicus brief argues that Congress intended that swaps regulations have a cross-border effect under section 2(i) without further action by the CFTC; that, absent an express requirement of formal rulemaking and consideration of costs and benefits, the CFTC has the discretion to apply section 2(i) on a case-by-case basis; and that the relief sought by the trade associations would create an exception for cross-border swaps that would be a loophole through which almost the entire global swaps market could fit.

Lofchie Comment:  The Congressional Democrats’ brief deploys misdirection to challenge arguments on the legality of the CFTC’s Guidance that the trade associations simply did not make.  Their brief asserts that the trade associations argued that any swap executed outside the borders of the United States is per se outside the jurisdiction of Dodd-Frank.  The associations did not actually make that argument (although they did request that relief as a temporary remedy).  Indeed, the associations did not make a substantive argument as to the ultimate scope of the CFTC’s authority.  The association’s argument is that Cross-Border Guidance was issued improperly as a matter of process (that is, it was not issued in accordance with the requirements of the Administrative Procedures Act).

The Democrats’ brief also asserts that the associations argue that the CFTC was required to adopt a rule establishing the extent of the CFTC’s cross-border jurisdiction.  But the associations did not make that argument, either.  Rather, the associations argued that the CFTC, in fact, adopted a rule (albeit calling it “guidance”) and, having done so, the CFTC was required to follow the process established in the Administrative Procedures Act.  In short, the brief appears not to be relevant to the issue raised to the court by the trade associations.

More disturbing than the misdirection, however, is the fact that the brief argues for a regulatory scheme where the law may be applied almost wholly on a “facts-and-circumstances” basis.  Applying the law in this manner deprives citizens of any meaningful ability to arrange their conduct so as to obey the law, and gives to the government a tremendous post facto authority to declare conduct to be criminal.  It is particularly problematic that the government would assert this open-ended authority as to actions that are not inherently immoral (e.g., crimes of fraud or violence), but rather to routine, freely negotiated contracts between largely commercial entities.

This issue of social philosophy – as to whether a scheme of economic regulation should be based solely on “facts and circumstance is in reality of far greater significance than the question of whether the CFTC should properly regulate any individual swap or however many thousands of swaps.  In this regard, we quote from Friedrich A. Hayek’s polemic, The Road to Serfdom (Chapter VI, “Planning and the Rule of Law”):  “Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law.  Stripped of all technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand rules which make it possible to foresee with a fair amount of certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on this basis of this knowledge.  Though this ideal can never be perfectly achieved, . . . the essential point . . . that the discretion left to the executive organs wielding coercive power should be reduced as much as possible, is clear enough.”

See:  Congressional Democrats’ Amicus Brief.
Related news:  Better Markets Amicus Brief Supports CFTC’s Cross-Border Guidance (March 21, 2014); CFTC Legal Memorandum to Dismiss Challenge to Its Cross-Border Guidance (March 18, 2014); Chamber of Commerce Submits Amicus Brief Regarding Lawsuit against CFTC Cross-Border Rule (February 5, 2014); Market Participants File Amended Complaint Challenging CFTC Cross-Border Guidance (January 8, 2014); Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (December 4, 2013).