Federal futures regulators rejected a proposal Friday that would have allowed them to force crooked brokers and traders to pay restitution to customers they cheated.
The Commodity Futures Trading Commission voted down a proposal, 3-2, to recommend the plan to the Senate for inclusion in the CFTC's reauthorization bill.Chairwoman Wendy Gram and commissioners Kalo Hineman and Robert Davis voted against the proposal noting that there already were avenues for victims to seek restitution on their own.
Davis said CFTC funds would be better spent pursuing wrongdoers than raising customers' expectations that they would always get their money back.
The proposal would have given administrative law judges, who preside at CFTC disciplinary actions, the option of including restitution of customer losses as a sanction against lawbreakers.
Currently, administrative law judges can issue cease and desist orders, prohibit trading, suspend or revoke registration or impose fines up to $100,000 per violation.
But Fowler C. West, the commissioner who proposed the restitution plan, noted that none of those actions "can bring about reimbursement of losses sustained by defrauded customers."
He added: "I support civil monetary penalties as a punitive remedy but the thought that customer funds, illegally taken, may be used to pay off a civil monetary penalty disturbs me."
The proposal also would have directed the CFTC to take customer losses into account when setting civil penalties.
West conceded that often violators are put out of business and there is no money left for anybody.