Update on the CFTC s Enforcement Program

1. Stephen Jay Obie Acting Director, Division of Enforcement Commodity Futures Trading Commission Update on the CFTC�s Enforcement Program

2. Disclaimer: The views expressed in this presentation are my own and do not necessarily reflect the views of the CFTC, its Acting Chairman, or any individual Commissioner.

3. CFTC Mission To prevent and deter manipulation and other disruptions to the markets, to ensure the financial integrity of transactions within those markets, and to protect market participants from fraud and abuse.

4. CFTC Enforcement Duty: To investigate and prosecute alleged violations of the Commodity Exchange Act (CEA) and Commission Regulations.

5. CFTC Enforcement Motto: �No one should be trying to game our nation�s commodity futures markets.�

6. CFTC Enforcement Maxim: �Real-time enforcement.� pursue every lead, and every issue

7. Energy Markets Enforcement Results: Since December 2002: 43 enforcement actions; Charging a total of 73 respondents (42 companies and 31 individuals) $445,465,000 in civil monetary penalties Cooperative enforcement with Department of Justice resulting in the criminal prosecution of 47 companies and individuals Established in 1974 as an independent agency to regulate the commodity futures and options markets in the United States. Jurisdiction extends to underlying physical commodity markets in cases of manipulation of the markets CFTC exercises jurisdiction over commodity futures and options markets pursuant to the statutory and regulatory framework contained in the Commodity Exchange Act, 7 U.S.C. s 1 et seq., and the CFTC Regulations, 17 C.F.R. s 1.1 et seq. POINT 1 -- In 1974 the majority of futures trading took place in the agricultural sector. -- These contracts gave farmers, distributors, and other end-users a way to hedge against price movements. Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States The CFTC Seal: The original function of the agency, at the intersection of finance and agriculture is reflected in the CFTC official seal -- An American bald eagle in black and white holding the scales of balanced interests -- over a black and white wheel of commerce and a farmer's plow, also in black and white. -- These symbols are enclosed with an inner red octagon and a blue outer octagon representing traditional futures contract trading pits. -- Around the outside of the octagons are the words COMMODITY FUTURES TRADING COMMISSION separated by two stars from the year �1975,� the first year of the Commission's existence. Since 1974 the futures industry has expanded from its agricultural roots. According to recent data of on-exchange derivative activities 5% is in the agricultural sector, 86% is in financial derivatives 9% is in other contracts, such as those on metals and energy productsEstablished in 1974 as an independent agency to regulate the commodity futures and options markets in the United States. Jurisdiction extends to underlying physical commodity markets in cases of manipulation of the markets CFTC exercises jurisdiction over commodity futures and options markets pursuant to the statutory and regulatory framework contained in the Commodity Exchange Act, 7 U.S.C. s 1 et seq., and the CFTC Regulations, 17 C.F.R. s 1.1 et seq. POINT 1 -- In 1974 the majority of futures trading took place in the agricultural sector. -- These contracts gave farmers, distributors, and other end-users a way to hedge against price movements. Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States The CFTC Seal: The original function of the agency, at the intersection of finance and agriculture is reflected in the CFTC official seal -- An American bald eagle in black and white holding the scales of balanced interests -- over a black and white wheel of commerce and a farmer's plow, also in black and white. -- These symbols are enclosed with an inner red octagon and a blue outer octagon representing traditional futures contract trading pits. -- Around the outside of the octagons are the words COMMODITY FUTURES TRADING COMMISSION separated by two stars from the year �1975,� the first year of the Commission's existence. Since 1974 the futures industry has expanded from its agricultural roots. According to recent data of on-exchange derivative activities 5% is in the agricultural sector, 86% is in financial derivatives 9% is in other contracts, such as those on metals and energy products

8. Current Enforcement Efforts: Pending Investigations: Involve over 100 firms and individuals associated with the energy markets. Pending Litigation: CFTC v. Johnson, et al., No. H-05-0332 (S.D. Texas filed Feb. 1, 2005); CFTC v. Reed, et al., No. 05-D-178 (D. Colo. filed Feb 1, 2005); CFTC v. Amaranth Advisors, L.L.C., et al., No. 07 CIV 6682 (S.D.N.Y. filed July 25, 2007); CFTC v. Optiver US, LLC, et al., No. 08 CIV 6560 (S.D.N.Y. filed July 24, 2008)

9. The Dilemma How can we achieve transparency in our investigations � and thus in the markets we regulate and police � when we are under a duty to keep investigations confidential?

10. Real-Time Enforcement Makes the Pendulum Swing� On May 29, 2008 the CFTC announced multiple energy market initiatives including the existence of the National Crude Oil Investigation launched in December 2007. On June 11-12, 2008, CFTC held its Second International Manipulation Enforcement Conference with a focus on global trends in energy markets. On September 22, 2008, the CFTC commented on crude oil�s record $25+/barrel climb: �CFTC enforcement staff will scour today�s trading activity to determine whether anyone engaged in illegal manipulative activity.�

11. But, This is Not The �Pit and the Pendulum� Real-time enforcement is �real�: No one has been deemed guilty for an unnamed violation; No one is under investigation to lend credence to the notion that there is a �cop on the beat�; and Our current initiatives are not a study on the effects of anxiety on market participants.

12. It�s Not About Avoiding a Hit from the Pendulum We are working towards a common goal; we can work together. Build and maintain relationships with us and with our fellow regulators. We are always open to engaging in a dialogue with you. Ex Parte Statutory Restraining Orders often include: -- Asset freeze and access to records -- Repatriation of offshore funds -- Bank directives Ex Parte Statutory Restraining Orders often include: -- Asset freeze and access to records -- Repatriation of offshore funds -- Bank directives

13. Recommendations for Working with the CFTC Immediately begin a dialogue with Enforcement staff and maintain it through the course of the investigation. We will work with you to find ways to balance our informational needs with the burdens they put upon your client.

14. Recommendations for Working with the CFTC Assist us in understanding who your client is, what it does, and its role in the energy markets. A better understanding of your client will lead to informed and more reasonable requests.

15. Recommendations for Working with the CFTC If you identify or have identified potentially improper conduct, bring it to our attention early in the process. Be prepared to discuss the physical logistics of responding to requests with our IT staff.

16. Recommendations for Working with the CFTC Newly enacted Federal Rule of Evidence 502 provides for significant protections: Provides that orders protecting privileged communications are binding on non-parties. Contemplates enforcement of �claw-back� agreements Provides that parties to proceeding can enter into confidentiality agreements providing for mutual protection against waiver in that proceeding which will bind non-parties if incorporated into a court order.

17. Recommendations for Working with the CFTC Explain the information you are producing. Avoid undue time and expense by providing a context for the information being provided and guidance as to how to read it. Avoid any misconceptions as to the production. Offer to meet with us face to face. Provide information in the format requested by our internal E-law team.

18. Familiarize Yourself with our Enforcement Advisory on Cooperation Available at www.cftc.gov �Cooperation rather than confrontation�

19. Develop and Maintain a Compliance Culture Engage management and employees in proactively seeking to comply with the letter and spirit of the law. Provide repetitive and mandatory training and education: rules, regulators, guidance, etc. Encourage employee self-reporting of potential misconduct Ex Parte Statutory Restraining Orders often include: -- Asset freeze and access to records -- Repatriation of offshore funds -- Bank directives Ex Parte Statutory Restraining Orders often include: -- Asset freeze and access to records -- Repatriation of offshore funds -- Bank directives

20. Thank You Stephen Jay Obie sobie@cftc.gov (202) 418-5111 Ex Parte Statutory Restraining Orders often include: -- Asset freeze and access to records -- Repatriation of offshore funds -- Bank directives Ex Parte Statutory Restraining Orders often include: -- Asset freeze and access to records -- Repatriation of offshore funds -- Bank directives