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Agriculture Committee members critical of CFTC for lack of oversight.

Members of the Senate Agriculture Committee are calling into question what they characterize as a lax regulatory atmosphere at the Commodity Futures Trading Commission that allowed the failure of the futures brokerage firm MF Global. CFTC and its chairman, Gary Gensler, are under pressure because of the quick collapse of MF Global and for allegedly not policing the firm's bookkeeping closely enough.

Investigators are searching for as much as $1.2 billion in missing customer money, which regulators have said the firm may have diverted for its own needs.

Gensler recused himself from CFTC's probe into MF Global after it filed for bankruptcy on Oct. 31. Gensler and Jon Corzine, who resigned as chief executive of MF Global last month, worked together at Goldman Sachs in the 1990s.

"It looks to me like you're trying to avoid the heat," said Sen. Mike Johanns (R-Neb.) at a recent Agriculture Committee hearing. "You certainly didn't recuse yourself all of the other weeks and months and days while MF Global was doing what it was doing."

Gensler responded that while he did not recuse himself immediately, he did so as soon as CFTC prepared for possible civil and criminal charges.

"We need to get to the bottom of exactly what happened with MF Global," said committee ranking member Pat Roberts (R-Kan.). "Unfortunately, the manner in which Mr. Gensler chose to step aside and recuse himself has raised more questions than it has answers."

Committee Chairwoman Debbie Stabenow (D-Mich.) pressed Gensler on why the firm had gotten clean bills of health just months before its failure and the revelation of its messy books. Gensler said the CFTC's ability to check the firm was limited because it has few resources and is forced to rely on industry watchdogs.

For example, Gensler said, the commission does not examine any of the futures commission merchants itself and instead is 100 percent reliant on self-regulatory organizations to oversee them. Gensler said it is not an ideal system.

When they were preparing the fiscal 2012 appropriations bill for CFTC, the House proposed $172 million and the Senate proposed $240 million. Following the resulting conference on the legislation, CFTC's FY12 funding was set at $205 million, $3 million less than the amount appropriated for FY11 and $103 million below the amount requested by President Obama.

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Publication:The Food & Fiber Letter
Date:Dec 12, 2011
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