As part of its regulatory authority over derivatives markets, the Commodity Futures Trading Commission (“CFTC”) investigates and prosecutes violations of the Commodity Exchange Act and governing regulations.  Parties caught in the Commission’s cross-hairs can attempt to negotiate settlements.  But recently, Commissioner Christy Goldsmith Romero announced a proposal that, if adopted and followed, would “ensure . . . more defendants admit to their wrongdoing.” 

Under the proposal, the CFTC would utilize what Commissioner Romero calls the Heightened Enforcement Accountability and Transparency (“HEAT”) Test to determine whether a defendant should be permitted to settle under neither-admit-nor-deny settlements.  Indeed, according to Commissioner Romero, the HEAT Test would “assist the CFTC in assessing whether specific cases demand . . . heightened justice for victims, heightened accountability and transparency through public acceptance of responsibility, and heightened deterrence that would accompany defendant admissions.”  Cases involving one or more of the following factors, which are “intentionally broad,” would likely require a party to admit to wrongdoing in order to settle a CFTC action: “egregious conduct; the presence of a criminal scheme; significant harm or risks of harm to investors and/or market participants; significant harm or risks of harm to market integrity; a recidivist defendant; obstruction, lying or concealment, in an investigation/examination by the CFTC, other federal authority on the same conduct, or a self-regulatory organization; and/or the need to send a pronounced message about particular conduct or practices.”

Whether the CFTC adopts and adheres to Commissioner Romero’s proposal and the HEAT Test will be a development to follow closely.  The proposal could potentially drive up the number of trials or hearings in CFTC prosecutions.  In kind, defendants must be mindful of the potential implications that a CFTC action could have in a criminal prosecution that could also be pursued.  Fifth Amendment rights might be triggered, and defense strategy might be revealed.  At the same time, defendants with prudent counsel may be in a position to obtain information that might not otherwise be made available (at least early on) in a criminal case.