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Between Bridges by Gary DeWaal: CFTC Proposes New Rule Amendments Setting Standards to Bar Accountants

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Published Date: October 23, 2014

The Commodity Futures Trading Commission proposes to amend one of its rules (Rule 14.8) to provide more guidance regarding the circumstances when accountants may be barred from practicing before the Commission.

Currently, the relevant rule has imprecise standards regarding unprofessional conduct that could lead to either attorneys or accountants being prohibited from practicing before the Commission, mainly that such persons:

  1. lack requisite qualifications to represent others;
  2. lack character or integrity; or
  3. have engaged in unethical or improper professional conduct in connection with certain enumerated formal Commission interactions “or otherwise.”

Going forward, unethical and improper professional conduct for accountants is proposed to be defined as:

  1. “ [i]ntentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional principles or standards;"
  2. “[a] single instance of highly unreasonable conduct that results in a violation of applicable professional principles or standards” where the “...accountant knows or should know heightened scrutiny is warranted;" or
  3. “[r]epeated instances of unreasonable conduct, each resulting in a violation of applicable professional principles or standards, which indicates a lack of competence to practice before the Commission."

The proposed amendment materially tracks an equivalent rule of the Securities and Exchange Commission (Rule 102(e)).

Although the CFTC acknowledges that not every “misstep” justifies an accountant being barred, some individual acts do. According to the CFTC, even:

…a single, highly unreasonable error in judgment or other act made in circumstances warranting heightened scrutiny conclusively demonstrates a lack of competence to practice before the Commission. Repeated unreasonable conduct may also indicate a lack of competence. Therefore, if the Commission finds that an accountant acted egregiously in a single instance or unreasonably in more than one instance, in each case resulting in a violation of applicable professional standards, and that this conduct indicates a lack of competence, then that accountant engaged in improper professional conduct under the standard elaborated today.

In the Federal Register release announcing the new proposed rule, the CFTC offers no specific examples differentiating between individual mistakes constituting missteps or barrable offenses. Instead, the Commission notes that “the amendment elaborates standards that are to be applied in adjudications on a case-by-case basis, a method that promotes equitable application of the standards as warranted upon full consideration of the facts of each case.”

The relevant existing broad CFTC rule on its face applies to both attorneys and accountants. The proposed amendment only would apply to accountants. A determination of unprofessionalism leading to a CFTC practice prohibition can occur only after a hearing.

The last day for comments is November 24.

For more information, see:
http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2014-25194a.pdf

See also SEC Rule 102(e) at:
http://www.ecfr.gov/cgi-bin/text-idx?SID=e6204c3e27483e852174228a10d7c62b&node=se17.3.201_1102&rgn=div8

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of October 23, 2014. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP and/or Gary DeWaal may represent one or more entities mentioned in this article. 

Quotations attributable to speeches are from published remarks and may not reflect statements actually made.

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Gary DeWaal

Gary DeWaal is currently Special Counsel with Katten Muchin Rosenman LLP in its New York office focusing on financial services regulatory matters. He provides advisory services and assists with investigations and litigation.


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