The problems facing the Commodity Futures Trading Commission are not as severe as they are highly publicized, a Hill observer noted.
Or, as one lawyer specializing in commodity law said, it depends if you're on the defensive - at the commission - or the offensive - in the industry or in Congress.
The General Accounting Office may soon end the debate, however. The GAO undertook a full audit of the agency at the beginning of the year at the request of the Senate Agriculture Committee, which has oversight jurisdiction for the CFTC.
A copy of a preliminary GAO report obtained by The Washington Post notes among the most substantial problems of the CFTC:
"poor" planning and goal setting, with chairman William T. Bagley cited for his lack of priorities;
significant staff turnover, which has weakened its operations and may contributing to the "revolving door" syndrome between government and industry;
several reorganizations already undertaken, which have failed to resolve the first problem;
excessively centralized decision making;
slow progress made on several industry issues, including rule enforcement on the exchanges, self regulation and computerized trading;
little staff expertise In economics; GAO said the staff has no capability to survey the markets under its jurisdiction;
duplicate market surveillance by the CFTC and the exchanges;
weak registration process of "futures commission merchants" and other market participants; GAO says it is largely a paper-mill factory without serious background checks made on applicants;
poor reregistration process; GAO says, no further Federal Bureau of Investigation or Securities and Exchange Commission checks are made upon reregistration:
a need for more enforcement staff, but the agency should also use existing staff more efficiently;
costly, slow reparations, or consumer complaint, process requires an attorney and should be overhauled; and the public relations and press office set up may be excessive.
The GAO indicated it also is studying the "plushness" of the agency's quarters and other perquisities, such as automobiles it uses.
The draft of the GAO review is tentatively scheduled to be presented to the CFTC for inhouse comment in December. The final report is to be released to Congress in February, prior to the reauthorization hearings in March.
Rep. Fred Richmond (D-N.Y.), one of the sharpest critics of the CFTC, said, "I have asked the comptroller himself to make sure that the report is not a whitewash. The preliminary findings seem to indicate that it is a serious review of the commission."
Several former high-level staff members at the commission made a variety of strong suggestions for improving the CFTC's operations.
"The agency at the very top has been disastrously run, particularly in deploying its resources, however small they may be," one noted.
He continued, "The problem primarily is personnel and leadership . . . I think you need three things to change the CFTC. You need people who are bright; you need people who are willing to work, and you need some people with leadership and organizational and administrative abilities and an understanding of the function of the agency."
He criticized the present commissioners for being "protective" of the future industry although for different reasons.
(Read P.) "dunn was a cotton broker and has sympathies there. (Robert) Martin was a Chicago trader and worked for Cook Industries (a major grain firm). (Gary) Seevers is protective because he's an economist who doesn't believe in regulation. (John V.) Rainbolt because he's a political animal who shifts with the wind and thinks he's protecting himself this way. Bagley - he's a hell of a nice guy - but he sees the industry as his constituents and thinks they're going to have to vote for him in the end."
Another former staffer was more measured in his assessment."If the chairman were an aggressive man with commitment, with some vision, a man like William Casey or Manny Cohen who led the SEC at very crucial times, then despite the other problems, the CFTC would be an excellent agency."
He added. "If you look at the work that has been accomplished with all of the administrative boondoggles there, you'll see that a lot of the criticism is not really fair."
The lawyer said a comparison of the regulations written by the CFTC in its brief with those developed by the SEC in its 43-year existence show the CFTC in a favorable light.
"The SEC is just now getting its uniform capital rules into place, an area they have been working on since the 1940, " he said. "The CFTU, on the other hand, has drafted excellent uniform capital rules and will adopt them soon. Of course, we had fine models to work from, but ours are much stronger and better drafted regulations than many of the SEC's.
"Customer protection rules have taken a long time to be handled at the CFTC, but they were among the first drafted," he continued. "They are much more dramatic tools than those of the SEC because the SEC relies to a great extent on the exchange protections for customers. The CFTC's provide for direct civil liability of an FCM (futures commission merchant) to his client."
"We also wrote the best set of arbitration rules around," he said. "They're so good that the SEC is thinking of plagiarizing them. I think that's a good instance of the quality of the work done by the CFTC to date."
CFTC chairman William T. Bagley agrees.
"We've been writing the book." Bagley said. "We were subjected to a Washington game called turf fighting for a long time and we had some hard times getting underway. But now we are a smooth, stable, efficient organization with a high caliber staff of high morale . . . And you can see what a lot of work we had done to date."
"When we started there was minimal monitoring of the markets and a smattering of regulations. We filled the gaps, written the code book in all the major areas, including totally new aresas of regulation." Bagley said. "We began exchange inspections to monitor rule enforcement and records of transactions. We've accomplished so much more than other agencies in a very, very brief time but we haven't gotten credit for it yet."
Commissioner Gary Seevers said the CFTC's operation stacks up very well against the goals for streamlining regulatory agencies set up by the Ford administration.
"We're one of the most open agencies: certainly we score well on the sunshine law," he said. "And we have emphasized competition in the marketplace, have worked to an optimum pace on issues before the commission . . . I don't think we have suffered the regulatory lag that many agencies do. There is still a paperwork problem. Our weakest area is probably the costs of regulating the markets, since we've had to ask for supplemental funds to handle the options area. But all in all, we've done very well so far I think."
Seevers said, however, that one of the biggest headaches for the agency has been the regulation of options trading. "If we could play it over again. I think we should have approached it differently," he said.
"London options problems have consumed a third of our enforcement staff's time and most of our budget."
Seevers continued, "I think we should have temporarily prohibited options trading when we started, since it was a tiny market then. Then we could have set up regulations permitting them to be traded only on the exchanges, to allow us to have the exchange manpower aiding in the surveillance and enforcement. This would have worked very well and would have prevented the major difficulties we ran into."
He said the commission has "learned a lot from its early mistakes," including the Maine potato futures default last year and widespread fraudulent practices in the sale of options.
"We've changed our operation because of what we've learned," he said. "We're doing pretty well on internal planning and scheduling now. The priorities are set and the staff knows where it's headed. All in all, I think the agency is doing a good job."
Some of the agency's constituents thing so, too. Walter Frankland, executive vice president of the Silver Users Association, said, "We've been impressed with the way they've gone about doing business. We felt for a long time that the futures markets had not been policed as they should have been . . . the commission has done a fantastic job, especially in alerting the public to fraudulent promotions.
"It has stepped on some people's toes, but they might have needed it," Frankland concluded.