Guest Post: ISDA's Lawyers Make Up "Facts" And "Law" To Overturn Limits On Speculators

Tyler Durden's picture

Submitted by David Fiderer

ISDA's Lawyers Make Up "Facts" And "Law" To Overturn Limits On Speculators

Eugene Scalia, son of the Supreme Court Justice, had neither the law nor the facts on his side. So, when he and his colleagues at Gibson Dunn & Crutcher drafted the complaint on behalf of two Wall Street trade groups, they fabricated their own statutory language and their own facts.  They must believe that the judges at the U.S. District Court in D.C. don't know how to read.

This frivolous lawsuit, filed to overturn new rules on position limits drafted by the Commodity Futures Trading Commission, should not be viewed as a legal document, as such.  It's really a press release designed to spearhead a broad based disinformation campaign on behalf of the International Swap and Derivatives Association, or ISDA, and the Securities Industry and Financial Markets Association. Or it's a political stalling tactic. The line between legal advocacy and lobbying seems to be blurred here.  Among the litany of false claims and distortions made in the complaint, those made in Paragragh 5 stand out:

The Commission [i.e. the CFTC] grossly misinterpreted its statutory authority. Congress did not require the Commission to establish position limits without regard to whether they would harm the U.S. economy by increasing the cost of food, energy, and other necessities. Rather, Congress authorized the Commission to establish position limits only if it first finds that they "are necessary to diminish, eliminate, or prevent" "an undue and unnecessary burden on interstate commerce" caused by "[e]xcessive speculation" (7 U.S.C. Section 6a(a)(1)), and are otherwise "appropriate" (id. section 6(a)(2)(A)). The Commission did not make those findings here. Such an abdication of the Commission's responsibility to apply its expertise to record evidence before establishing new regulations is the essence of unreasoned decisionmaking.

None of that is true. Congress never suggested that it granted the CFTC limited authority, "to establish position limits only if it first finds that they "are necessary to diminish, eliminate, or prevent' "an undue and unnecessary burden on interstate commerce' caused by "[e]xcessive speculation'." Quite the opposite. Anyone who read the statute would quickly ascertain that Scalia et al. are trying to a pull a fast one before the District Court. The statute, 7 U.S.C. Section 6a, declares, upfront, that:

Excessive speculation in any commodity under contracts of sale of such commodity for future delivery made on or subject to the rules of contract markets is an undue and unnecessary burden on interstate commerce in such commodity.

In other words, Congress, not the CFTC, declared that excessive speculation is an undue and unnecessary burden on interstate commerce. Which is why it enacted and amended statutes to limit such excessive speculation. This is nothing new. Congress first authorized regulators to impose limits on excessive speculation back in 1936, when it passed the Commodity Exchange Act, or CEA. As the CFTC noted, 

CEA section 4a states that ""excessive speculation'' in any commodity traded on a futures exchange ""causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity is an undue and unnecessary burden on interstate commerce'' and directs the Commission to establish such limits on trading ""as the Commission finds necessary to diminish, eliminate, or prevent such
burden.'' This basic statutory mandate has remained unchanged since its original enactment in 1936 and through subsequent amendments to section 4a, including the Dodd-Frank Act.

It may be worthwhile to recap why excessive speculation has caused such wreckage in commodity markets.  Only a small percentage of commodity trades are executed on regulated exchanges, such as the CME. But the vast majority of over-the-counter trades are priced according to the benchmarks set by the exchanges. So, for instance, a sale of natural gas in Los Angeles might sell at a premium to the price of gas sold at the Henry Hub in Louisiana, according to prices set by contracts traded on the NYMEX in New York. If there are no position limits on the exchanges, then it's very easy to corner the market in a commodity and manipulate prices up or down. Price discovery in commodity markets is based on the balance between actual production and actual consumption and the effectiveness of the distribution system that connects producers and consumers. If someone corners the market on the exchange, he can subvert that price discovery mechanism.

The people from Enron manipulated gas prices, to the harm of consumers in Los Angeles. They manipulated gas prices when they worked at Enron, and they manipulated gas prices after they left Enron, and worked at hedge funds. A report prepared by Carl Levin's staff on Senate Permanent Subcommittee on Investigations showed how two hedge funds founded by former Enron employees--Amaranth and Centaurus--went to extreme lengths to manipulate gas prices and subvert the price discovery function of the exchanges. They were able to get away with it as long as they could, because Mr. and Mrs. Enron, aka Phil and Wendy Gramm, neutered the CEA, first with a secret side deal with Goldman, then by circumventing the rules to exempt Enron's energy trading business, and then with legislation, passed in 2000, known as the Enron Loophole

And since Congress has long held that excessive speculation is, ipso facto, an undue burden on interstate commerce, it specifically tasked the CFTC with the obligation to impose position limits that would diminish the excessive speculation. It wrote:

For the purpose of diminishing, eliminating, or preventing such burden, the Commission shall, from time to time,... by rule, regulation, or order, proclaim and fix such limits on the amounts of trading which may be done or positions which may be held by any person...

Congress, goes further, dictating, under 7 U.S.C. Section 6a(3)(B) that the CFTC shall set those limits:

(B) to the maximum extent practicable, in its discretion--
(i) to diminish, eliminate, or prevent excessive speculation as described under this section;
(ii) to deter and prevent market manipulation, squeezes, and corners;
(iii) to ensure sufficient market liquidity for bona fide hedgers; and
(iv) to ensure that the price discovery function of the underlying market is not disrupted. [Emphasis added.]

The CFTC studied the issue at length. It held numerous open hearings and meetings, and reviewed more than 15,000 comments, including those submitted by ISDA. The process of ascertaining the proper position limits to curtail excessive speculation is described, in about 98,000 words, in the Federal Register.

The complaint has 80 additional paragraphs wherein the attorneys, to put it charitably, dissemble to the point of fraud. It demands that the Court both enjoin the CFTC from implementing the Position Limits Rule, and vacate the rules entirely. But this isn't really a legal action. It's a smear campaign. As coincidence would have it, the two lead attorneys on the case, Scalia and Miguel Estrada, are members of The Federalist Society.

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GeneMarchbanks's picture

Who could've seen this coming? Total Black Swan.

HedgeAccordingly's picture

black swan might be within our own borders.. if we cant figure out how to use a computer

Peter K's picture

Is the fact that Scalia is the son of a SC judge of any material relevance in this case?

BTW Down twinkles.

11b40's picture

Maybe like father, like son?  Sounds as if he is as sleezy as the old man.

Material?  No.  Relevant?  Maybe.

Grinder74's picture


Obama Sr. was a is his son.

Obama Sr. hated the does his son.

Obama Sr. used those around him for his own nefarious does his son.


See how fun this is?

11b40's picture is fun.  Was the article about the father or the son?

Anyway, what's your point?  I don't give a rat's patootie about Obama, and have no argument with your statements one way or the other, as he was not the object of this discussion.

I do, however, disagree with Scalia's judgements, which overwhelmingly come down on the side of corporate America and the greediest, slimiest among the expense of freedom and liberty.  Oh, yes.  I almost forgot.  He and his asshole buddy Thomas are crooks, liars, and hypocrites of the highest order.



non_anon's picture

it all began with...

PulauHantu29's picture

DC Judges are very bright, Hopefully they slam dunk those BoBo's.

topcallingtroll's picture

They may be bright, but if they are too busy to read a few hundred pages a day carefully then this Hail Mary has a chance. That is the dirty little secret of our judiciary. Judges robosign most everything and just hope their clerks got it right.

Stormdancer's picture

Don't forget the SIFMA which is also party to this lawsuit.  And who'd a guessed...Blythe Sally Jess Masters is board member and chair emeritus at the SIFMA.

SheepHerder's picture

I can't recommend Damon Vrabel's series on debunking money enough. I watched it last week and was rudely awakened from a lot of my misconceptions. There's a lot of fallacies in thinking this country has been anything other than a complex debt based slavery system.  In decades to come, our masters are going to totally trounce all over the Constitution and our civil liberities as they collect on what they feel is theirs.   

topcallingtroll's picture

Scalia is knowledgeable about the legal system. Judges cant possibly read everything and write their own rulings on everything. They depend on law clerks to do most of the work and the judge justs robosigns a majority of the cases.

He is hoping to baffle busy clerks with lengthy bullshit hoping they will skim over it.

I had a ruling against me once that didnt even address the issue of standing or the specific case itself. It was as if someone got a couple of cases mixed up and cut and pasted the wrong thing. I was too poor at the time to pay five thousand for an appeal. I suspect this happens a lot.

lunaticfringe's picture

Lawyers engaged in dreaming up shit  to line their own pockets? Never heard of such a thing. You didn't think the banks were gonna give up that easy, did ya?  Blago is an attorney. heh.


topcallingtroll's picture

An attorney friend brazenly made up a "precedent" in a DUI case in texarkana arkansas when i lived there. He knew if it sounded sensible that this particular judge would be too lazy to check up on it and too embarrassed to admit he didnt know the "precedent"

He got the guy off a DUI and made 7000 bucks!

This attorney used to be the prosecutor, so he knew how to play that old man.

Andre's picture

"A good lawyer knows the law. A great lawyer knows the judge."

11b40's picture

There he is again....good ole turtlehead Phil Gramm and that Chinese wife of his, Wendy.

This former Congressman, who went on to become SVP with UBS, probably did more to undermine the financial system, and cause the problems we have today, than any other single individual involved in this mess.  He as the Congressman, and she from the rape and pillage branch of private industry (and Enron Board member) acting as his guide, effectively took care of Glass-Stegal and regulation of commodites trading.  There should be wanted dead or alive posters of this asswipe all over Texas.

jmc8888's picture

....and his protege is running for President.  Think of Phil's entire funding network (and thus policy making) transferred to Rick Perry, and you get the idea of what Rick would be focused on inbetween calls to BofA to help him out.



Bansters-in-my- feces's picture

lawyers breathe too much air.

I wish they would breathe none.

rambler6421's picture

THey need to protect Jamie Dimon.

miker's picture

These position limits are being stalled.  The Fed needs for the squid and JPMorgue to be able to run the precious metals market.  To do this, they need unlimited positions, not something based on actual use of the material.  This is where the whole commodity futures system has gone bankrupt.  Anyone can speculate.  And the big ones do it in spades.  Anyway, these limits will never change.....that would curtail the ability of the Fed to have PMs manipulated down.


Kat's picture

Where do I start?  I'll start where I'll end.


Whoever wrote that piece is a total and complete idiot with zero understanding of markets.

Sophist Economicus's picture

Nice try David.  

BTW, love the line "As coincidence would have it, the two lead attorneys on the case, Scalia and Miguel Estrada, are members of The Federalist Society"


Does the Federalist Society SCARE the folks at Huff Po???     LOL!

JW n FL's picture



this article completely ignores the fact that..

1. there was a vote.

2. the vote passed.

3. people are just mad becuase they are not in the club that voted.

no one likes a loser who wont shut up..

so ya'll just have a coke and smile and shut the fuck up!

ArsoN's picture
Find me a strict constitutionalists lawyer that isn't a member of the Federalist Society...  It's the by far the biggest libertarian inclusive law school organization out there. An attorney should be a book for the client.  He may advise and may not break laws but ultimately moral decisions are for the well informed client to make.  This is a trait unique to free democratic societies and something you never find in communism, dictatorship or fascism.    The above wouldn't be an issue if we didn't subsidize interest rates and banking institutions. 
tony bonn's picture

i would declare scalia's brief a hoax and fraud upon the court and jail the scum bag for 1 year and fine him 100,000usd....

Grinder74's picture

Of if he were a liberal, appoint him to a czar position in your administration.

Augustus's picture

". . . And since Congress has long held that excessive speculation is, ipso facto, an undue burden on interstate commerce, it specifically tasked the CFTC with the obligation to impose position limits that would diminish the excessive speculation. It wrote: . . . ."

And so. we find that the CFTC did not follow the requisit procedures to determine IF there was or is "excessive speculation" in the first place.  As noted, the vast majority of commodity trades occur OFF of the exchanges, even within the US.  That does not even consider trades in other markets and countries.  The attempt to restrict speculation is futile and doomed to failure.  It will only benefit the regulator class, as is the real purpose of about 90% of all regulation.

AldoHux_IV's picture

Markets continue to be manipulated bitchez!