NOBULL: Wall Street Journal Article on CFTC staff switching sides – Revolving door

Hot Commodities: CFTC Staffers


After working long hours over many months crafting new rules for Wall Street, a number of government regulators are switching sides to work for the firms that will have to follow and interpret them.

Whenever there is a major policy change in Washington like the 2010 Dodd-Frank financial overhaul, it enhances the marketability of government employees with specialized skills and contacts. But in the past, it was officials at the Securities and Exchange Commission, the Federal Reserve and the Treasury Department in particular who found their expertise and contacts most highly valued in the financial industry.

Bloomberg News

The CFTC—a portal to Wall Street?

Now, Dodd-Frank has prompted strong demand for staffers from the Commodity Futures Trading Commission. The law gave the agency broad new responsibilities to write rules for complex derivatives called swaps that had been largely unregulated. Many rules already are in place, while others will take effect next year. The new swaps rules have swept many more financial firms under the agency’s jurisdiction, boosting demand for even midlevel staffers with just a few years’ experience.

At least nine CFTC employees have decamped since June for firms in finance, law and accounting that are figuring out how to comply with the Dodd-Frank overhaul. Six of the staffers were directly involved in rule making and three were in enforcement.

Among the firms doing the hiring are J.P. Morgan ChaseJPM -2.25% & Co., Deutsche Bank AG, DBK.XE +0.82% Nomura Securities, Covington & Burling LLP and PricewaterhouseCoopers LLP. Some are subject to the rules, while others advise clients who are.

It isn’t clear how the recent departures will affect the agency and its work. At a minimum, the CFTC will have fewer people who drafted the rules around to help implement them next year. An agency spokesman declined to comment.

"Might as well get someone who knows that space and is presumably current on all the new rules and regulations and knows people over there and can keep us current when things change," said Jack Kelly, managing director of Compliance Search Group, which specializes in filling jobs related to government regulations.

Take, for instance, Julian Hammar of the CFTC’s general counsel’s office. Mr. Hammar recently left for the law firm Covington & Burling, where he will advise clients on the implementation of Dodd-Frank.

"It seemed like a good opportunity as the Dodd-Frank rule makings have gone into effect to maybe explore things in the private sector," Mr. Hammar said.

Carl Kennedy, a staffer to Commissioner Scott O’Malia, went to J.P. Morgan, and Adedayo Banwo, a lawyer in the agency’s general counsel’s office, joined Deutsche Bank. Both firms and several other large banks are expected early next year to register as "swap dealers," a designation that carries with it governance rules and capital requirements.

A series of CFTC cases related to alleged rigging of the London interbank offered rate, or Libor, also has given the agency a higher profile, fueling private-sector demand for employees in its enforcement division. At least three people have recently left the division.

PricewaterhouseCoopers had no former CFTC employees on staff two years ago, but the firm has hired three in the past 18 months, including former Enforcement Chief Counsel Phyllis Cela, said Dan Ryan, chairman of the firm’s financial regulatory practice.

"We’ve been working for mostly large banks with respect to helping them prepare for derivatives regulations," Mr. Ryan said. Ms. Cela advises clients on "what steps they should take now to avoid future enforcement actions," he said.

Mr. Kennedy, Mr. Banwo, and Ms. Cela declined to comment or didn’t respond to requests for comment.

The departing CFTC employees join the ranks of private-sector experts who have worked directly on the government’s response to the financial crisis on Capitol Hill, at the Federal Reserve, at the Treasury Department and other agencies.

Still, critics of the revolving door between Washington and Wall Street say they worry ex-staffers could use their personal connections to pressure the agency into crafting rules favorable to their new employers.

Lower-level employees like those who have left the CFTC could be more attractive to firms than more senior people because they typically aren’t subject to the same ethics restrictions as the higher-ups. Senior officials and commissioners are barred from communicating with the agency for a year after they leave, and much of the new CFTC regulatory system will go into effect in 2013.

"Best you can do is have these rules and restrict how much lobbying they can do and how much they can influence what the CFTC does," said Simon Johnson, a professor of global economics at Massachusetts Institute of Technology’s Sloan School of Business.

Aside from the unique expertise the former CFTC staffers bring to the private sector, some observers also see other motivating factors for the spate of exits.

Dan Waldman, who was the CFTC’s general counsel from 1996-1999, said that agency’s heavier workload since Dodd-Frank also may be contributing to the talent outflow.

"The agency has so exploited them that they just burn out and say, ‘If I’m going to work this hard I might as well make three times as much,’ " Mr. Waldman said.


Sherri Stone

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