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In the Courts

By ssalkin | Law Journal Newsletters
November 01, 2016

U.S. District Court Judge Refuses to 'Rubber-Stamp' CFTC Settlement Agreement

On Sept. 22, 2016, Judge William H. Pauley III of the United States District Court for the Southern District of New York denied the United States Commodity Futures Trading Commission's (CFTC) and Deutsche Bank AG's (Deutsche Bank) request for entry of a consent order to impose an injunction, appoint an independent monitor, and improve control mechanisms at Deutsche Bank in response to violations of the Commodity Exchange Act and CFTC regulations. See generally U.S. Commodity Futures Trading Commission v. Deutsche Bank AG, No. 16-06544 (S.D.N.Y). Judge Pauley's decision is the most recent example of increasing judicial oversight and scrutiny of settlement agreements between corporations and government prosecutors/regulators.

The consent order was drafted in response to a settlement concluded between the CFTC and Deutsche Bank in August 2016. Deutsche Bank had previously agreed, as part of a settlement reached in September 2015, to implement policies and procedures to prevent system outages as part of its business continuity and disaster recovery plan. However, a systems outage in April 2016 left Deutsche Bank unable to report swaps transactions for multiple asset classes for nearly a week. According to the CFTC, the April 2016 outage made market data unavailable to the public and inhibited its ability to assess the risks associated with market swaps, in addition to violating the previous settlement for which Deutsche Bank paid a $2.5 million civil penalty.
While the CFTC and Deutsche Bank pushed for approval of the consent order drafted in response to the April 2016 systems outage, Judge Pauley refused to approve it, absent precedent providing that said settlement would be “fair, reasonable, adequate and in the public interest.” See SEC. v. Citigroup Global Mkts., Inc., 752 F.3d 285, 294 (2d Cir. 2014). Judge Pauley continued, “While regulatory agencies such as the CFTC should be afforded deference, a district judge's 'duty extends beyond that of a 'rubber stamp.'” See Consumer Financial Protection Bureau v. Sprint Corp., No. 14-cv-9931 (WHP), 2015 WL 3395581, at *1 (S.D.N.Y. May 19, 2015). Noting that the CFTC's application for entry of the order was “bereft of any authorities,” Judge Pauley ordered the CFTC to file a memorandum explaining the reasons why the consent order was consistent with applicable law.

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