Proceedings Before the Commodity Futures Trading Commission; Rules Relating to Suspension or Disbarment From Appearance and Practice, 63343-63346 [2014-25194]

Download as PDF Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify this proposed regulation: 1. Is not a ‘‘significant regulatory action’’ under Executive Order 12866; 2. Is not a ‘‘significant rule’’ under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); 3. Will not affect intrastate aviation in Alaska; and 4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: ■ Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. Amend § 39.13 by adding the following new airworthiness directive (AD): mstockstill on DSK4VPTVN1PROD with PROPOSALS ■ Bombardier, Inc.: Docket No. FAA–2014– 0754; Directorate Identifier 2014–NM– 136–AD. (a) Comments Due Date We must receive comments by December 8, 2014. (b) Affected ADs None. VerDate Sep<11>2014 16:37 Oct 22, 2014 Jkt 235001 (c) Applicability This AD applies to Bombardier, Inc. Model DHC–8–401, –402, and –403 airplanes, certificated in any category, serial numbers 4001 through 4424 inclusive. (d) Subject Air Transport Association (ATA) of America Code 29, Hydraulic Power. (e) Reason This AD was prompted by reports of hydraulic fluid loss from the reservoir of the main landing gear’s (MLG’s) alternate extension system. We are issuing this AD to, in the event of a failure of the primary MLG extension system, prevent failure of the alternate MLG extension system to fully extend the MLG into a down-and-locked position, which could result in collapse of both MLG during touchdown. (f) Compliance Comply with this AD within the compliance times specified, unless already done. (g) Inspection and Corrective Action Within 2,000 flight hours or 12 months after the effective date of this AD, whichever occurs first: Do a general visual inspection of the MLG alternate extension system reservoir lid for correct assembly, and do all applicable corrective actions, in accordance with the Accomplishment Instructions of Bombardier Service Bulletin 84–29–34, dated May 9, 2013, including Parker Service Bulletin 82910012–29–431, dated October 22, 2012. Do all applicable corrective actions within 2,000 flight hours or 12 months after the effective date of this AD, whichever occurs first. (h) Credit for Previous Actions This paragraph provides credit for actions required by paragraph (g) of this AD, if those actions were performed before the effective date of this AD using Bombardier All Operator Message 543, dated October 17, 2012, which is not incorporated by reference in this AD. (i) Other FAA AD Provisions The following provisions also apply to this AD: (1) Alternative Methods of Compliance (AMOCs): The Manager, New York Aircraft Certification Office (ACO), ANE–170, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the ACO, send it to ATTN: Program Manager, Continuing Operational Safety, FAA, New York ACO, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516–228–7300; fax 516–794–5531. Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/ certificate holding district office. The AMOC approval letter must specifically reference this AD. PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 63343 (2) Contacting the Manufacturer: For any requirement in this AD to obtain corrective actions from a manufacturer, the action must be accomplished using a method approved by the Manager, New York ACO, ANE–170, Engine and Propeller Directorate, FAA; or Transport Canada Civil Aviation (TCCA); or Bombardier, Inc.’s TCCA Design Approval Organization (DAO). If approved by the DAO, the approval must include the DAOauthorized signature. (j) Related Information (1) Refer to Mandatory Continuing Airworthiness Information (MCAI) Canadian Airworthiness Directive CF–2014–15, dated June 6, 2014, for related information. This MCAI may be found in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA– 2014–0754. (2) For Bombardier service information identified in this AD, contact Bombardier, Inc., Q-Series Technical Help Desk, 123 Garratt Boulevard, Toronto, Ontario M3K 1Y5, Canada; telephone 416–375–4000; fax 416–375–4539; email thd.qseries@ aero.bombardier.com; Internet http:// www.bombardier.com. For Parker service information identified in this AD, contact Parker Aerospace, 14300 Alton Parkway, Irvine, CA 92618; phone: 949–833–3000; Internet: http://www.parker.com. You may view this service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425–227–1221. Issued in Renton, Washington, on October 15, 2014. Michael Kaszycki, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. 2014–25179 Filed 10–22–14; 8:45 am] BILLING CODE 4910–13–P COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 14 RIN 3038–AE21 Proceedings Before the Commodity Futures Trading Commission; Rules Relating to Suspension or Disbarment From Appearance and Practice Commodity Futures Trading Commission. ACTION: Proposed rule. AGENCY: The Commodity Futures Trading Commission (‘‘Commission’’) is proposing to amend part 14 of its regulations, under which the Commission may deny, temporarily or permanently, the privilege of certain persons to appear or practice before it. The amendment clarifies the Commission’s standard for determining when an accountant has engaged in SUMMARY: E:\FR\FM\23OCP1.SGM 23OCP1 mstockstill on DSK4VPTVN1PROD with PROPOSALS 63344 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules ‘‘unethical or improper professional conduct’’ which has been established as a basis for denying the accountant the privilege of appearing or practicing before the Commission. DATES: Comments must be received on or before November 24, 2014. ADDRESSES: You may submit comments, identified by RIN number 3038–AE21, by any of the following methods: • Agency Web site, via the Comments Online process: http:// comments.cftc.gov. Follow the instructions for submitting comments through the Web site. • Mail: Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. • Hand delivery/courier: Same as Mail, above. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow instructions for submitting comments. Please submit your comments using only one method. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission’s regulations, 17 CFR 145.9. The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act. FOR FURTHER INFORMATION CONTACT: Jason Gizzarelli, Director, Office of Proceedings, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. Telephone: (202) 418–5395. SUPPLEMENTARY INFORMATION: VerDate Sep<11>2014 16:37 Oct 22, 2014 Jkt 235001 I. Background The Commission proposes to amend § 14.8 of its regulations to provide additional guidance with respect to the circumstances in which the Commission, after notice and opportunity for hearing, may deny, temporarily or permanently, the privilege of appearing or practicing before it to any accountant who is found by a preponderance of the evidence to have violated § 14.8 of the regulations. Specifically, the Commission can impose a sanction upon any persons, most notably attorneys and accountants, after notice and opportunity for a hearing, who it finds do not possess the requisite qualifications to represent others; to be lacking in character or integrity; or to have engaged in unethical or improper professional conduct either in the course of an adjudicatory, investigative, rulemaking, or other proceeding before the Commission or otherwise.1 The Commission has filed six administrative actions alleging violations of Rule 14.8 since 1996 against accountants appearing and practicing before the Commission.2 In each of those six cases, the Commission accepted a settlement in which the defendants were banned from practicing before the Commission for a variety of time periods. The amendments to § 14.8 relate to the practice of accountants before the Commission and are intended to expand upon the language of current § 14.8(c) to articulate the standard more specifically and in a manner consistent with the standard the Commission has applied in past administrative adjudications considering accountant behavior. The proposed amendment of § 14.8 generally tracks Securities and Exchange Commission (‘‘SEC’’) Rule 102(e), in which the SEC has elaborated its standard for determining when an accountant engages in ‘‘improper professional conduct’’ by specifying three types of violative conduct. The SEC rule states that, with respect to persons licensed to practice as 1 17 CFR 14.8. re Deloitte & Touche and Thomas Lux, CFTC Docket No. 96–10, 1996 WL 547883 (CFTC September 25, 1996); In re Sherald Griffin, CPA & Donna Laubscher, CPA, CFTC Docket No. 98–12, 1998 WL 161709 (CFTC April 8, 1998); In re Anatoly Osadchy, CPA, CFTC Docket No. 99–2, 1998 WL 754637 (CFTC October 29, 1998); In re G. Victor Johnson and Altschuler, Melvoin & Glasser, LLP, CFTC Docket No. 04–29, 2005 WL 1398672 (CFTC June 13, 2005); In re G. Victor Johnson II, McGladrey & Pullen, LLP and Altshuler, Melvoin & Glasser, LLP, CFTC Docket No. 11–01, 2010 WL 3903905 (CFTC October 4 2010); In re Jeannie Veraja-Snelling, CFTC Docket No. 13–29 (CFTC filed Aug. 26, 2013). 2 In PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 accountants, ‘‘improper professional conduct’’ under SEC Rule 201.102(e)(1)(ii) means intentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional standards or either of the following two types of negligent conduct: a single instance of highly unreasonable conduct that results in a violation of applicable professional standards in circumstances in which an accountant knows, or should know, that heightened scrutiny is warranted; or repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards, that indicate a lack of competence to practice before the SEC.3 In subparagraph (A) of its amended rule, the SEC defines ‘‘improper professional conduct’’ to include the most egregious violations of applicable professional standards—those done intentionally or knowingly. In subparagraph (B) of Rule 102(e), the SEC specifies what types of negligent conduct rise to the level of ‘‘improper professional conduct.’’ These standards are being added to the proposed § 14.8 of the Commission’s regulations to provide further definition to the fitness criteria established in § 14.8. II. Role of, and Standards Applied to, Accountants Accountants auditing Commission registrants perform a critical gatekeeper role in protecting the financial integrity of the futures markets and the investing public. Accountants appearing before the Commission in this capacity must understand the business operations of their clients and conduct financial audits both in accordance with applicable professional principles and standards and in satisfaction of all the requirements of the Commission’s regulations.4 Rule 14.8 can be an effective remedial tool to ensure that the accountants appearing before the Commission are competent to do so and do not pose a threat to the Commission’s registration and examination functions. Accountants who engage in intentional or knowing misconduct, which includes reckless conduct, clearly pose such a threat, as do accountants who engage in certain specified types of negligent conduct. 3 17 CFR 201.102(e)(1)(iv). current professional principles and standards applicable to accountants appearing before the Commission include Generally Accepted Accounting Principles, Generally Accepted Auditing Standards, International Accounting Standards, the Code of Conduct of the American Institute of Certified Public Accountants, and the rules and standards of the Public Company Accounting Oversight Board. 4 The E:\FR\FM\23OCP1.SGM 23OCP1 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules The Commission believes that 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. The proposed amendment to § 14.8 is not meant, however, to encompass every professional misstep. A single judgment error, for example, even if unreasonable when made, may not indicate a lack of competence to practice before the Commission sufficient to require Commission action. The proposed amendment is crafted to provide greater clarity with respect to the Commission’s standard, as developed to-date through administrative adjudications, for assessing accountant conduct. At the same time, however, like the SEC regulations after which the amendment is modeled, 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. Just as the SEC noted when it amended its rule in 1998, the Commission does not seek to use § 14.8 to establish new standards for the accounting profession.5 The rule itself imposes no new professional standards on accountants. Accountants who appear or practice before the Commission are already subject to professional standards, and § 14.8(c) is intended to apply consistent with those existing standards. mstockstill on DSK4VPTVN1PROD with PROPOSALS III. Related Matters A. Regulatory Flexibility Act The Regulatory Flexibility Act (‘‘RFA’’) requires agencies to consider whether the rules they may adopt will have a significant economic effect on a substantial number of small entities.6 The proposed amendment simply clarifies the standard by which the Commission determines whether accountants have engaged in ‘‘improper 5 See 63 FR 33305, June 18, 1998 and 63 FR 57164, Oct. 26, 1998. 6 5 U.S.C. 601 et seq. VerDate Sep<11>2014 16:37 Oct 22, 2014 Jkt 235001 professional conduct’’ and does not impose any additional burdens on small businesses. Accordingly, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the amendments will not have a significant economic impact on a substantial number of small businesses. B. Paperwork Reduction Act The proposed amendment to Rule 14.8 does not establish a collection of information for which the Commission would be obligated to comply with the Paperwork Reduction Act.7 C. Consideration of Costs and Benefits Section 15(a) of the Commodity Exchange Act (‘‘CEA’’) requires the Commission to ‘‘consider the costs and benefits’’ of its actions before promulgating a regulation under the CEA or issuing certain orders.8 Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors. Reckless accounting practices threaten serious harm to market participants and, potentially, to the financial system as a whole.9 Section 14.8, which encompasses ‘‘improper professional conduct’’ of accountants that practice before the Commission, is one of the Commission’s tools to guard against such harm. This proposed amendment is not designed to substantively change the standard that the Commission now employs under § 14.8(c) in assessing accountant conduct. Rather, as discussed above, the proposed amendment—which closely tracks language in the SEC’s analogous rule 10—would simply expand upon the language of current § 14.8(c) to articulate the standard more specifically and in a manner consistent with the 7 44 U.S.C. 3501 et seq. U.S.C. 19(a). 9 For example, accounting professionals who prepare or assist in the preparation of misleading auditing reports or financial statements—either deliberately or due to their incompetence—may help cover up fraudulent practices that result in loss of customer funds. In addition, misleading auditing reports or financial statements may result in excessive risks being undertaken, because certain risk measures or decisions regarding risk management are based on accounting data. 10 17 CFR 201.102(e)(1)(iv). 87 PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 63345 standard the Commission has applied in past administrative adjudications considering accountant behavior.11 Accordingly, the proposed amendment’s chief benefit derives from clarifying the specific contours of the Commission’s existing § 14.8(c) standard as applied to accountant behavior, and by codifying this refined approach in the Commission’s regulations. Through this codification the more well-defined standard will be more transparent and accessible to professional practitioners, market participants, and the public generally. As a result, accountants appearing before the Commission will have the benefit of prominent notice of the specific standards of conduct to which they are held, and the consequences of failing to meet them. To the extent an accountant inclined to test the bounds of professional conduct perceives loopholes or ambiguity for exploitation in the more general standard now stated in § 14.8(c), the proposed clarifying amendment provides a deterrent against such potentially damaging conduct, a benefit for market participants and the public. Further, such clear, specific notice forecloses to a great degree potential for an offending accounting practitioner, in defense of improper conduct, to argue confusion or uncertainty about what specifically the Commission’s standard requires, thus supporting Commission enforcement efficiency. The Commission anticipates no material cost burden attributable to the proposed amendment for market participants or accounting professionals to whom the amendment is addressed. Again, this proposed rule amendment merely articulates with more precision the contours of the existing, but now more generally-stated, standard in current § 14.8(c), which incorporates the standards to which accountants must already conform under the rules governing that profession. Accountants practicing before the Commission are currently expected to be in compliance with this standard, so there should be no cost to them to change behavior to meet it. In the following, the Commission considers the proposed amendment relative to the CEA section 15(a) factors. (1) Protection of Market Participants and the Public As noted, improper accounting practices may help to cover up financial frauds or foster improper managerial decisions, and may pose a threat to the safety of customer funds. By articulating 11 See E:\FR\FM\23OCP1.SGM footnote 2 of section I of this Preamble. 23OCP1 63346 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules the Commission’s standards in more specific, codified, and readily accessible form, the amendment safeguards against accountants professing lack of knowledge of the applicable standards— or exploiting perceived ambiguities in them—to the detriment of market participants and the public. Threats to the safety of customer funds generate public distrust in financial market integrity. To the extent this rule amendment better informs accountants and fosters their understanding of the Commission’s standards and the consequences of improper actions—actions that potentially could threaten the safety of customer funds—the proposed amendment promotes the integrity of financial markets. (3) Price Discovery The Commission does not foresee that the proposed amendment will directly impact price discovery. (4) Sound Risk Management Practices As noted, improper accounting practices may lead to unnecessary risks being undertaken, as certain risk measures or managerial decisions are based on accounting data. To the extent the proposed amendment improves accountants’ understanding of the Commission’s standards, thereby deterring improper conduct that potentially could result in unnecessary risks being undertaken, the proposed amendment promotes sound risk management practices. (5) Other Public Interest Considerations mstockstill on DSK4VPTVN1PROD with PROPOSALS By harmonizing the CFTC Rule 14.8(c) standard for accountants with that of SEC Rule 102(e), the proposed amendment helps to ensure consistency and reduces potential for confusion. The Commission requests comment on all aspects of this consideration of costs and benefits, including whether any alternative is perceived as more beneficial, less costly, or otherwise better suited to serve the public interests articulated in CEA section 15(a) than the amendment herein proposed. List of Subjects in 17 CFR Part 14 Administrative practice and procedure, Professional conduct and competency standards, Ethical conduct, Penalties. For the reasons discussed in the preamble, the Commodity Futures Trading Commission proposes to amend 17 CFR part 14 as set forth below: 16:37 Oct 22, 2014 Jkt 235001 DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 1. The authority citation for part 14 continues to read as follows: 21 CFR Parts 1, 16, 112, 117, and 507 Authority: Pub. L. 93–463, sec. 101(a)(11), 88 Stat. 1391, 7 U.S.C. 4a(j), unless otherwise noted. [Docket Nos. FDA–2011–N–0920, FDA– 2011–N–0921, FDA–2011–N–0922, and FDA– 2011–N–0143] ■ (2) Efficiency, Competitiveness, and Financial Integrity of Futures Markets VerDate Sep<11>2014 PART 14—RULES RELATING TO SUSPENSION OR DISBARMENT FROM APPEARANCE AND PRACTICE 2. Amend § 14.8 by revising paragraph (c) to read as follows: RIN 0910–AG36, RIN 0910–AG35, RIN 0910– AG10, and RIN 0910–AG64 § 14.8 Lack of requisite qualifications, character and integrity. Food and Drug Administration Food Safety Modernization Act; Public Meeting ■ * * * * * (c) To have engaged in unethical or improper professional conduct either in the course of any adjudicatory, investigative, or rulemaking or other proceeding before the Commission or otherwise. With respect to the professional conduct of persons licensed to practice as accountants, ‘‘unethical or improper professional conduct’’ means: (1) Intentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional principles or standards; or (2) Either of the following two types of negligent conduct: (i) A single instance of highly unreasonable conduct that results in a violation of applicable professional principles or standards in circumstances in which an accountant knows, or should know, that heightened scrutiny is warranted. (ii) Repeated instances of unreasonable conduct, each resulting in a violation of applicable professional principles or standards, which indicate a lack of competence to practice before the Commission. Issued in Washington, DC, on October 17, 2014, by the Commission. Christopher J. Kirkpatrick, Secretary of the Commission. Note: The following appendix will not appear in the Code of Federal Regulations. Appendix to Proceedings Before the Commodity Futures Trading Commission; Rules Relating to Suspension or Disbarment From Appearance and Practice—Commission Voting Summary On this matter, Chairman Massad and Commissioners Wetjen, Bowen, and Giancarlo voted in the affirmative. No Commissioner voted in the negative. [FR Doc. 2014–25194 Filed 10–22–14; 8:45 am] BILLING CODE 6351–01–P PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 AGENCY: Food and Drug Administration, HHS. ACTION: Notification of public meeting. The Food and Drug Administration (FDA) is announcing a public meeting to discuss proposed revisions to four rules originally proposed in 2013 to implement the FDA Food Safety Modernization Act (FSMA). In response to the comments received on these foundational FSMA proposed rules, FDA issued supplemental notices of proposed rulemaking that propose significant changes to four of the proposed rules including: Current Good Manufacturing Practice and Hazard Analysis and Risk-Based Preventive Controls for Human Food (Preventive Controls for Human Food); Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption (Produce Safety); Current Good Manufacturing Practice and Hazard Analysis and Risk-Based Preventive Controls for Food for Animals (Preventive Controls for Animal Food); and Foreign Supplier Verification Programs for Importers of Food for Humans and Animals (Foreign Supplier Verification Programs). The purpose of the public meeting is to solicit oral stakeholder and public comments on the new content of the supplemental proposed rules and to inform the public about the rulemaking process (including how to submit comments, data, and other information to the rulemaking dockets), and to respond to questions about the supplemental proposed rules. DATES: See section II, ‘‘How to Participate in the Public Meeting,’’ in the SUPPLEMENTARY INFORMATION section of this document for the date and time of the public meeting, closing dates for advance registration, and information on deadlines for submitting either electronic or written comments to FDA’s Division of Dockets Management. ADDRESSES: See section II, ‘‘How to Participate in the Public Meeting,’’ in SUMMARY: E:\FR\FM\23OCP1.SGM 23OCP1

Agencies

[Federal Register Volume 79, Number 205 (Thursday, October 23, 2014)]
[Proposed Rules]
[Pages 63343-63346]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25194]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 14

RIN 3038-AE21


Proceedings Before the Commodity Futures Trading Commission; 
Rules Relating to Suspension or Disbarment From Appearance and Practice

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
proposing to amend part 14 of its regulations, under which the 
Commission may deny, temporarily or permanently, the privilege of 
certain persons to appear or practice before it. The amendment 
clarifies the Commission's standard for determining when an accountant 
has engaged in

[[Page 63344]]

``unethical or improper professional conduct'' which has been 
established as a basis for denying the accountant the privilege of 
appearing or practicing before the Commission.

DATES: Comments must be received on or before November 24, 2014.

ADDRESSES: You may submit comments, identified by RIN number 3038-AE21, 
by any of the following methods:
     Agency Web site, via the Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
     Mail: Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581.
     Hand delivery/courier: Same as Mail, above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow instructions for submitting comments.

Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the Commission to consider information 
that you believe is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the procedures established in 
Sec.  145.9 of the Commission's regulations, 17 CFR 145.9.
    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from www.cftc.gov that it may deem to be inappropriate for 
publication, such as obscene language. All submissions that have been 
redacted or removed that contain comments on the merits of the 
rulemaking will be retained in the public comment file and will be 
considered as required under the Administrative Procedure Act and other 
applicable laws, and may be accessible under the Freedom of Information 
Act.

FOR FURTHER INFORMATION CONTACT: Jason Gizzarelli, Director, Office of 
Proceedings, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581. Telephone: (202) 
418-5395.

SUPPLEMENTARY INFORMATION:

I. Background

    The Commission proposes to amend Sec.  14.8 of its regulations to 
provide additional guidance with respect to the circumstances in which 
the Commission, after notice and opportunity for hearing, may deny, 
temporarily or permanently, the privilege of appearing or practicing 
before it to any accountant who is found by a preponderance of the 
evidence to have violated Sec.  14.8 of the regulations. Specifically, 
the Commission can impose a sanction upon any persons, most notably 
attorneys and accountants, after notice and opportunity for a hearing, 
who it finds do not possess the requisite qualifications to represent 
others; to be lacking in character or integrity; or to have engaged in 
unethical or improper professional conduct either in the course of an 
adjudicatory, investigative, rulemaking, or other proceeding before the 
Commission or otherwise.\1\
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    \1\ 17 CFR 14.8.
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    The Commission has filed six administrative actions alleging 
violations of Rule 14.8 since 1996 against accountants appearing and 
practicing before the Commission.\2\ In each of those six cases, the 
Commission accepted a settlement in which the defendants were banned 
from practicing before the Commission for a variety of time periods. 
The amendments to Sec.  14.8 relate to the practice of accountants 
before the Commission and are intended to expand upon the language of 
current Sec.  14.8(c) to articulate the standard more specifically and 
in a manner consistent with the standard the Commission has applied in 
past administrative adjudications considering accountant behavior.
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    \2\ In re Deloitte & Touche and Thomas Lux, CFTC Docket No. 96-
10, 1996 WL 547883 (CFTC September 25, 1996); In re Sherald Griffin, 
CPA & Donna Laubscher, CPA, CFTC Docket No. 98-12, 1998 WL 161709 
(CFTC April 8, 1998); In re Anatoly Osadchy, CPA, CFTC Docket No. 
99-2, 1998 WL 754637 (CFTC October 29, 1998); In re G. Victor 
Johnson and Altschuler, Melvoin & Glasser, LLP, CFTC Docket No. 04-
29, 2005 WL 1398672 (CFTC June 13, 2005); In re G. Victor Johnson 
II, McGladrey & Pullen, LLP and Altshuler, Melvoin & Glasser, LLP, 
CFTC Docket No. 11-01, 2010 WL 3903905 (CFTC October 4 2010); In re 
Jeannie Veraja-Snelling, CFTC Docket No. 13-29 (CFTC filed Aug. 26, 
2013).
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    The proposed amendment of Sec.  14.8 generally tracks Securities 
and Exchange Commission (``SEC'') Rule 102(e), in which the SEC has 
elaborated its standard for determining when an accountant engages in 
``improper professional conduct'' by specifying three types of 
violative conduct. The SEC rule states that, with respect to persons 
licensed to practice as accountants, ``improper professional conduct'' 
under SEC Rule 201.102(e)(1)(ii) means intentional or knowing conduct, 
including reckless conduct, that results in a violation of applicable 
professional standards or either of the following two types of 
negligent conduct: a single instance of highly unreasonable conduct 
that results in a violation of applicable professional standards in 
circumstances in which an accountant knows, or should know, that 
heightened scrutiny is warranted; or repeated instances of unreasonable 
conduct, each resulting in a violation of applicable professional 
standards, that indicate a lack of competence to practice before the 
SEC.\3\
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    \3\ 17 CFR 201.102(e)(1)(iv).
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    In subparagraph (A) of its amended rule, the SEC defines ``improper 
professional conduct'' to include the most egregious violations of 
applicable professional standards--those done intentionally or 
knowingly. In subparagraph (B) of Rule 102(e), the SEC specifies what 
types of negligent conduct rise to the level of ``improper professional 
conduct.'' These standards are being added to the proposed Sec.  14.8 
of the Commission's regulations to provide further definition to the 
fitness criteria established in Sec.  14.8.

II. Role of, and Standards Applied to, Accountants

    Accountants auditing Commission registrants perform a critical 
gatekeeper role in protecting the financial integrity of the futures 
markets and the investing public. Accountants appearing before the 
Commission in this capacity must understand the business operations of 
their clients and conduct financial audits both in accordance with 
applicable professional principles and standards and in satisfaction of 
all the requirements of the Commission's regulations.\4\
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    \4\ The current professional principles and standards applicable 
to accountants appearing before the Commission include Generally 
Accepted Accounting Principles, Generally Accepted Auditing 
Standards, International Accounting Standards, the Code of Conduct 
of the American Institute of Certified Public Accountants, and the 
rules and standards of the Public Company Accounting Oversight 
Board.
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    Rule 14.8 can be an effective remedial tool to ensure that the 
accountants appearing before the Commission are competent to do so and 
do not pose a threat to the Commission's registration and examination 
functions. Accountants who engage in intentional or knowing misconduct, 
which includes reckless conduct, clearly pose such a threat, as do 
accountants who engage in certain specified types of negligent conduct.

[[Page 63345]]

    The Commission believes that 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.
    The proposed amendment to Sec.  14.8 is not meant, however, to 
encompass every professional misstep. A single judgment error, for 
example, even if unreasonable when made, may not indicate a lack of 
competence to practice before the Commission sufficient to require 
Commission action. The proposed amendment is crafted to provide greater 
clarity with respect to the Commission's standard, as developed to-date 
through administrative adjudications, for assessing accountant conduct. 
At the same time, however, like the SEC regulations after which the 
amendment is modeled, 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.
    Just as the SEC noted when it amended its rule in 1998, the 
Commission does not seek to use Sec.  14.8 to establish new standards 
for the accounting profession.\5\ The rule itself imposes no new 
professional standards on accountants. Accountants who appear or 
practice before the Commission are already subject to professional 
standards, and Sec.  14.8(c) is intended to apply consistent with those 
existing standards.
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    \5\ See 63 FR 33305, June 18, 1998 and 63 FR 57164, Oct. 26, 
1998.
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III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires agencies to 
consider whether the rules they may adopt will have a significant 
economic effect on a substantial number of small entities.\6\ The 
proposed amendment simply clarifies the standard by which the 
Commission determines whether accountants have engaged in ``improper 
professional conduct'' and does not impose any additional burdens on 
small businesses. Accordingly, the Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
amendments will not have a significant economic impact on a substantial 
number of small businesses.
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    \6\ 5 U.S.C. 601 et seq.
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B. Paperwork Reduction Act

    The proposed amendment to Rule 14.8 does not establish a collection 
of information for which the Commission would be obligated to comply 
with the Paperwork Reduction Act.\7\
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    \7\ 44 U.S.C. 3501 et seq.
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C. Consideration of Costs and Benefits

    Section 15(a) of the Commodity Exchange Act (``CEA'') requires the 
Commission to ``consider the costs and benefits'' of its actions before 
promulgating a regulation under the CEA or issuing certain orders.\8\ 
Section 15(a) further specifies that the costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
(1) Protection of market participants and the public; (2) efficiency, 
competitiveness, and financial integrity of futures markets; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations. The Commission considers the costs and 
benefits resulting from its discretionary determinations with respect 
to the section 15(a) factors.
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    \8\ 7 U.S.C. 19(a).
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    Reckless accounting practices threaten serious harm to market 
participants and, potentially, to the financial system as a whole.\9\ 
Section 14.8, which encompasses ``improper professional conduct'' of 
accountants that practice before the Commission, is one of the 
Commission's tools to guard against such harm. This proposed amendment 
is not designed to substantively change the standard that the 
Commission now employs under Sec.  14.8(c) in assessing accountant 
conduct. Rather, as discussed above, the proposed amendment--which 
closely tracks language in the SEC's analogous rule \10\--would simply 
expand upon the language of current Sec.  14.8(c) to articulate the 
standard more specifically and in a manner consistent with the standard 
the Commission has applied in past administrative adjudications 
considering accountant behavior.\11\
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    \9\ For example, accounting professionals who prepare or assist 
in the preparation of misleading auditing reports or financial 
statements--either deliberately or due to their incompetence--may 
help cover up fraudulent practices that result in loss of customer 
funds. In addition, misleading auditing reports or financial 
statements may result in excessive risks being undertaken, because 
certain risk measures or decisions regarding risk management are 
based on accounting data.
    \10\ 17 CFR 201.102(e)(1)(iv).
    \11\ See footnote 2 of section I of this Preamble.
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    Accordingly, the proposed amendment's chief benefit derives from 
clarifying the specific contours of the Commission's existing Sec.  
14.8(c) standard as applied to accountant behavior, and by codifying 
this refined approach in the Commission's regulations. Through this 
codification the more well-defined standard will be more transparent 
and accessible to professional practitioners, market participants, and 
the public generally. As a result, accountants appearing before the 
Commission will have the benefit of prominent notice of the specific 
standards of conduct to which they are held, and the consequences of 
failing to meet them. To the extent an accountant inclined to test the 
bounds of professional conduct perceives loopholes or ambiguity for 
exploitation in the more general standard now stated in Sec.  14.8(c), 
the proposed clarifying amendment provides a deterrent against such 
potentially damaging conduct, a benefit for market participants and the 
public. Further, such clear, specific notice forecloses to a great 
degree potential for an offending accounting practitioner, in defense 
of improper conduct, to argue confusion or uncertainty about what 
specifically the Commission's standard requires, thus supporting 
Commission enforcement efficiency.
    The Commission anticipates no material cost burden attributable to 
the proposed amendment for market participants or accounting 
professionals to whom the amendment is addressed. Again, this proposed 
rule amendment merely articulates with more precision the contours of 
the existing, but now more generally-stated, standard in current Sec.  
14.8(c), which incorporates the standards to which accountants must 
already conform under the rules governing that profession. Accountants 
practicing before the Commission are currently expected to be in 
compliance with this standard, so there should be no cost to them to 
change behavior to meet it.
    In the following, the Commission considers the proposed amendment 
relative to the CEA section 15(a) factors.
(1) Protection of Market Participants and the Public
    As noted, improper accounting practices may help to cover up 
financial frauds or foster improper managerial decisions, and may pose 
a threat to the safety of customer funds. By articulating

[[Page 63346]]

the Commission's standards in more specific, codified, and readily 
accessible form, the amendment safeguards against accountants 
professing lack of knowledge of the applicable standards--or exploiting 
perceived ambiguities in them--to the detriment of market participants 
and the public.
(2) Efficiency, Competitiveness, and Financial Integrity of Futures 
Markets
    Threats to the safety of customer funds generate public distrust in 
financial market integrity. To the extent this rule amendment better 
informs accountants and fosters their understanding of the Commission's 
standards and the consequences of improper actions--actions that 
potentially could threaten the safety of customer funds--the proposed 
amendment promotes the integrity of financial markets.
(3) Price Discovery
    The Commission does not foresee that the proposed amendment will 
directly impact price discovery.
(4) Sound Risk Management Practices
    As noted, improper accounting practices may lead to unnecessary 
risks being undertaken, as certain risk measures or managerial 
decisions are based on accounting data. To the extent the proposed 
amendment improves accountants' understanding of the Commission's 
standards, thereby deterring improper conduct that potentially could 
result in unnecessary risks being undertaken, the proposed amendment 
promotes sound risk management practices.
(5) Other Public Interest Considerations
    By harmonizing the CFTC Rule 14.8(c) standard for accountants with 
that of SEC Rule 102(e), the proposed amendment helps to ensure 
consistency and reduces potential for confusion.
    The Commission requests comment on all aspects of this 
consideration of costs and benefits, including whether any alternative 
is perceived as more beneficial, less costly, or otherwise better 
suited to serve the public interests articulated in CEA section 15(a) 
than the amendment herein proposed.

List of Subjects in 17 CFR Part 14

    Administrative practice and procedure, Professional conduct and 
competency standards, Ethical conduct, Penalties.
    For the reasons discussed in the preamble, the Commodity Futures 
Trading Commission proposes to amend 17 CFR part 14 as set forth below:

PART 14--RULES RELATING TO SUSPENSION OR DISBARMENT FROM APPEARANCE 
AND PRACTICE

0
1. The authority citation for part 14 continues to read as follows:

    Authority:  Pub. L. 93-463, sec. 101(a)(11), 88 Stat. 1391, 7 
U.S.C. 4a(j), unless otherwise noted.

0
2. Amend Sec.  14.8 by revising paragraph (c) to read as follows:


Sec.  14.8  Lack of requisite qualifications, character and integrity.

* * * * *
    (c) To have engaged in unethical or improper professional conduct 
either in the course of any adjudicatory, investigative, or rulemaking 
or other proceeding before the Commission or otherwise. With respect to 
the professional conduct of persons licensed to practice as 
accountants, ``unethical or improper professional conduct'' means:
    (1) Intentional or knowing conduct, including reckless conduct, 
that results in a violation of applicable professional principles or 
standards; or
    (2) Either of the following two types of negligent conduct:
    (i) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional principles or standards in 
circumstances in which an accountant knows, or should know, that 
heightened scrutiny is warranted.
    (ii) Repeated instances of unreasonable conduct, each resulting in 
a violation of applicable professional principles or standards, which 
indicate a lack of competence to practice before the Commission.

    Issued in Washington, DC, on October 17, 2014, by the 
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix to Proceedings Before the Commodity Futures Trading 
Commission; Rules Relating to Suspension or Disbarment From Appearance 
and Practice--Commission Voting Summary

    On this matter, Chairman Massad and Commissioners Wetjen, Bowen, 
and Giancarlo voted in the affirmative. No Commissioner voted in the 
negative.

[FR Doc. 2014-25194 Filed 10-22-14; 8:45 am]
BILLING CODE 6351-01-P