Rep. Austin Scott, Chairman of the House Agriculture Committee's Subcommittee on Horticulture, Research, Biotechnology and Foreign Agriculture, held a public hearing to review the impact of enforcement activities by the U.S. Department of Labor (DOL) on specialty crop growers. Specifically, Subcommittee Members addressed growing concerns that DOL is using the "Hot Goods" provision under the Fair Labor Standards Act of 1938 (FLSA) in an arbitrary manner against producers of perishable agricultural commodities without regard for the inevitable destruction of the product and significant economic hardship inflicted on farmers and their employees.
Opening Statement of Chairman Lucas at Oversight of the Swaps and Futures Markets: Recent Events and Impending Regulatory Reforms Hearing
Tamara Hinton, 202.225.0184
Thank you for joining us for this important hearing. I’d first like to thank the Ranking Member and his staff for their efforts today. I’d also like to thank our witnesses for their time.
It is beyond unfortunate that for a second time in less than a year, this Committee is examining the circumstances of a futures commission merchant bankruptcy where customer funds were not properly segregated.
Once again the very cornerstone of the futures markets, customer funds segregation, has been severely and suddenly called into question.
For decades, futures markets have been a trusted tool for farmers, ranchers, and businesses seeking to manage risk. The bedrock of their trust in these markets is based on the fundamental protections provided by mandatory segregation of customer funds.
Additionally, confidence in the futures and swaps markets stems from customers knowing that regulators are doing their job.
As we all know, on July 10, the National Futures Association halted the operations of PFG Best and the CFTC filed a federal suit against the firm and its founder, Mr. Russell Wasendorf, Sr., alleging that the company had committed fraud, violated customer segregation laws, and falsified financial statements filed with the CFTC. Later that day, the company filed for bankruptcy. Press reports indicate that roughly $220 million in segregated client money is missing.
The clients of firms like PFGBest and MF Global are our constituents. They are farmers and ranchers who until recently have never had cause for concern in using the futures markets. They’ve never had to worry that the tool for managing risk would one day turn risky and cast doubt on the integrity of the futures markets.
In light of the bankruptcy, CFTC has adopted new rules to strengthen their controls over the treatment and monitoring of customer funds. And, the self regulatory organizations have proposed several new initiatives that the Committee will examine today that would ensure another fraud in the futures markets cannot be carried out for years simply by opening a P.O. Box.
But the question remains: who is minding the store? There are some in this town who argue that we need more regulations. But the fact is new regulations mean nothing when regulators are not enforcing the existing rules on the books. What we need is regulators doing their job.
It is worth noting that CFTC gave itself high marks for direct examinations of futures brokers in a 2011 performance analysis. Yet, billions of dollars in customer funds are missing today as the result of CFTC’s failure to perform with MF Global and now PFGBest.
Today, we hope to gain a comprehensive understanding of the facts surrounding PFGBest’s bankruptcy and the failure to miss such an outright fraud, in addition to an update on MF Global and recent Dodd-Frank rules that have been finalized by the CFTC.
Thank you. I look forward to hearing from our witnesses today.