M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
COMMODITY FUTURES TRADING COMMISSION

Reuben Jeffrey III

Chairman

Madge Bolinger Gazzola

Executive Director

Mark Carney

Chief Financial Officer

November 2005

This report is in the public domain. Authorization to reproduce it in whole or in part is granted.

While permission to reprint this publication is not necessary, the citation should be: 

Commodity Futures Trading Commission, FY 2005 Performance and Accountability Report, 

Washington D.C., 20581.

All photographs in this document are proprietary and prior permission from the photographer

is required for any use or reproduction of the photographs. 
In the Tradition of Quality Reporting, 

the Commodity Futures Trading Commission 

Proudly Presents the FY 2005 

Performance and Accountability Report 
Table of Contents

Message from the Chairman 1

FY 2005 Commissioners 2

How This Report is Organized 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

CFTC 2005 Highlights 5

CFTC Celebrates 30 Years 7

Commission at a Glance 

Performance Highlights 12

Financial Highlights 18

Management Challenges  .

PERFORMANCE SECTION

Mission Statement and Agency Goals  .

Introduction to the Performance Section  .

Program Assessment Rating Tool 30

Strategic Goal One: Economic Utility  .

Strategic Goal Two: Market User and Public 37

Strategic Goal Three: Industry  .

Methodology for Collecting, Maintaining, and Analyzing Performance Data 57

FINANCIAL SECTION

Message from the Chief Financial Officer  .

Financial Summary 62

Principal Financial Statements 64

Required Supplementary Information 79

Report of the Independent Auditors 80

Other Statutorily Required Reports 93

APPENDICES

Inspector General’s Assessment of Management Challenges 98

Enforcement Litigation by Strategic Goals 102

Glossary of Abbreviations and Acronyms . 


A Message from the Chairman

Thirty years have passed since Congress established the 

Commodity Futures Trading Commission (CFTC or Commission). The CFTC is an independent agency with the

mandate to regulate commodity futures and option markets 

in the United States. During that time, the Agency’s mandate has been renewed and expanded several times, most

recently by the Commodity Futures Modernization Act of 

2000 (CFMA)

Today, because of the far reaching changes envisioned 

by the CFMA, trading in futures contracts has expanded rapidly beyond traditional physical and agricultural commodities into a vast array of financial instruments, including 

foreign currencies, U.S. and foreign government securities

and U.S. and foreign stock indices. As regulators, we play 

important role in ensuring the vitality and innovativeness 

of the futures markets. With effective CFTC oversight, the

futures markets serve the important functions of price discovery and offsetting price risk. As this report chronicles, the

Commission works very hard to assure the integrity of the 

futures markets by encouraging their competitiveness and 

efficiency, protecting market participants against manipulation, abusive trading practices, and fraud, and ensuring the 

financial integrity of the clearing process

We also work to ensure that resources we are entrusted 

with are used wisely and that we focus on results. That is

why we are pleased to present our second Performance and 

Accountability Report. It has been prepared following the 

guidelines established in OMB Circular A-136, Financial 

Reporting Requirements. It satisfies our statutory requirements

for financial and performance management reporting

Most importantly, this report is a testament to the 

CFTC’s dedication to regulating the markets under our jurisdiction and achieving management excellence while doing 

so. Of particular note are the leadership contributions

made by Commissioner Brown-Hruska serving as Acting 

Chairman. Her steady hand and good judgment served the

Commission well during a transitional year. Thanks to all

our Commissioners and the dedicated staff for their successes, many of which are highlighted in the Management’s 

Discussion and Analysis section of this document

Therefore, it is with pride and confidence in the 

Commission staff that I certify with reasonable assurance 

that our agency’s systems of management control, taken 

as a whole, comply with the Federal Managers’ Financial 

Integrity Act of 1982, and that our agency is in substantial 

compliance with applicable Federal accounting standards 

and the U.S. Standard General Ledger at the transactio

level. The CFTC’s financial and performance data is reliable,

accurate, and consistent

Reuben Jeffrey III

Chairman

November 15, 2005


Fiscal Year 2005 Commissioners

From left; Sharon Brown-Hruska, Commissioner; Walter L. Lukken, Commissioner; Reuben Jeffery III, Chairman; Frederick W. 

Hatfield, Commissioner; Michael V. Dunn, Commissioner


Management’s Discussion and Analysis 

The Management’s Discussion and Analysis (MDA) is an 

overview of the entire Report, as supported and detailed in 

the Performance Section and Financial Section. The MDA

presents performance and financial highlights for FY 2005, 

in addition to compliance with legal and regulatory requirements and existing or possible effects and challenges facing 

the Commission in the future

Performance Section

The Performance Section compares the Commission’s 

performance to the annual goals as set forth in the CFTC 

Strategic Plan. For more information on this section,

please contact Emory Bevill, Deputy Director for Budget 

and Planning, at 202-418-5187

Financial Section

The Financial Section is comprised of the Commission’s 

financial statements and related Independent Auditors’ 

report. For more information on this section, please contact

Jeanne Ring, Deputy Director for Accounting and Financial 

Systems, at 202-418-5185

The CFTC’s FY 2005 Performance and Accountability Report is the second such report published by the 

Commission. This document is comprised of three primary sections: 

How This Report is Organized



M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

“

“

I expect the CFTC to continue to protect successfully the 

public from fraud, manipulation, and abusive trading practices and 

to foster open, competitive,and financially sound futures and option markets. 

—Chairman reuben Jeffery iii

26

P E R F O R M A N C E S E C T I O N

“

“

[The CFTC Enforcement Program] is well designed to meet 

objectives and to maximize the use of its resources.

Through cooperative enforcement with other government and private 

organizations, the program enhances the impact of its efforts.

—Office Of ManageMent and Budget

60

F I N A N C I A L S E C T I O N

“

“

We continue to strive for excellence in the 

financial management of the Commission as illustrated 

throughout this Performance and Accountability Report.

—Mark Carney, Chief finanCial OffiCer

Questions and comments about this document can be directed to Mark Carney, Chief Financial 

Officer, at 202-418-5477 or, via e-mail at mcarney@cftc.gov.

An electronic version of this document is available on the Internet at www.cftc.gov/cftc/cftcreports.htm. 

The Commission’s strategic and performance plans are also available at this Web site


M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

“

“

I expect the CFTC to continue to protect successfully the 

public from fraud, manipulation, and abusive trading practices and 

to foster open, competitive,and financially sound futures and option markets. 

—Chairman Reuben Jeffery


M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Major Power Company Reaches Global 

Settlement

“The $81 million penalty assessed today against American Electric Power Company, Inc., (AEP) and AEP Energy

Services, Inc., reflects the gravity of the defendant’s illegal

conduct in the natural gas markets. I applaud the extensive

efforts of our enforcement staff to expose the company’s 

wrongdoing, as well as their efforts in assisting the Department of Justice and Federal Energy Regulatory Commission. Over the last three years, Corporate Compliance

departments have changed their controls and the way they 

report sensitive market information. It is obvious that our

diligent enforcement actions in this area have had a positive impact on the veracity of traders,” stated Director of 

Enforcement, Gregory Mocek. January 26, 200

Final Communiqué on Common Work 

Program to Facilitate Trans-Atlantic 

Derivatives Business

On June 28, 2005, the CFTC and the Committee of European Securities Regulators (CESR) published the final 

Communiqué, which sets out a common work program 

to facilitate trans-Atlantic derivatives business and reflects 

considerable industry input

The work program incorporates the views of organized derivatives markets, intermediaries, and end-users 

from the United States and the European Union. Under

the terms set forth in the work program, a task force 

drawn from the CFTC and CESR will review issues relating 

to enhanced transparency and clarity of regulatory developments, simplified access or recognition procedures, and 

targeted consultation on cross-border issues, as well as 

issues raised by the derivatives industry and end-users

Enforcement Actions

The Commission’s Enforcement program serves to 

protect markets, market users, and the public. In fulfilling that mandate, the Division of Enforcement seeks to

detect violations quickly, bring immediate action to cease 

violative conduct, interact with other State and Federal 

regulators as a force multiplier, and publicize its actions 

in order to educate the public about possible misconduct and deter future violators. To that end, during FY

2005, the Commission’s Enforcement program filed 69 

enforcement actions against more than 200 respondents/ 

defendants, and obtained over $160 million in restitution, disgorgement, and penalties in pending cases

Approval of New Exchange

The Commission approved the application of the Chicago 

Climate Futures Exchange, L.L.C., (CCFE) for designati

as a contract market. CCFE is an innovative new market



CFTC 2005 Highlights

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
that offers trading of standardized and cleared futures 

contracts based on emission allowances. For example,

the Sulfur Financial Instrument (SFI) futures contract is 

based on the Environmental Protection Agency’s sulfur 

dioxide emission allowance trading program. CCFE SFI

futures contracts are also financially guaranteed. These

emission allowance futures contracts provide utilities and 

other firms with low-cost, financially guaranteed tools for 

managing the exposure to price volatility in the emission 

allowance market

Unqualified Audit Opinion

CFTC earned an unqualified or clean audit opinion on 

its FY 2005 Financial Statements–the second year that its 

statements were audited pursuant to the Accountability 

of Tax Dollars Act. This achievement validates the Commission’s commitment to financial integrity and effective

program management. Maintaining accounting integrity

and quality stewardship of federal funds is tantamount to 

fulfilling its fiduciary responsibility to the public

Rule Enforcement Review of Regulatory 

Compliance Programs

The Commodity Futures Trading Commission notified the 

New York Board of Trade (NYBOT) of the results of its rule 

enforcement review. Commission staff found that NYBOT

maintains an adequate market surveillance program to 

prevent manipulations and enforce its speculative position 

limits and position accountability levels

The review, which was recently completed by the 

Commission’s Division of Market Oversight, covered the 

target period from January 1, 2004, to December 31, 2004

Global Markets

Obtaining input on international market issues that affect 

the integrity and competitiveness of U.S. markets an

firms engaged in global business is a necessity

In FY 2005, the CFTC worked cooperatively with the 

U.S. Treasury Department in the continuing efforts to assist China in developing its financial marke

New Products Pose New Challenges

The Commission has faced the challenge of performing 

surveillance on a record number of actively traded futures 

and option contracts–over 900 contracts were listed by 

U.S. futures exchanges during 20

The proliferation of new offerings reflects the continuing evolution of the futures industry in responding 

to the risk management and price discovery needs of the 

international economy

Examples of new futures and option contracts include 

energy swaps, retail gasoline, weather derivatives, local 

housing markets and complex financial instruments, as 

well as new contracts based on the more traditional commodities such as ethanol, wood pulp, freight rates, and 

corn and soybean production

NEW FEDERAL GOVERNMENT 

FINANCIAL EDUCATION WEBSITE

Through a partnership with 19 other Federal agencies, the CFTC helped launch a new financial education Web site and toll-free hotline number.

The mymoney.gov Web site and the 1-888-mymoney toll-free hotline were established to provide 

Americans easy access to information that can help 

them better understand their money – how to save 

it, invest it, and manage it wisely to meet important 

personal goals. 




CFTC Celebrates 30 Years of Service to the

American People

On April 21, 1975, with around 200 staff transferred from 

the Commodity Exchange Authority of the Department 

of Agriculture, the newly established independent agency 

opened its doors to regulate the commodity futures and 

option markets of the United States

At that time, the vast majority of futures trading took 

place in the agricultural sector and only on the trading 

floors of major exchanges

Today, the Commodity Futures Trading Commission 

has nearly 500 employees who continue to dedicate 

themselves to achieving the agency’s mission in a world 

of change

CFTC Celebrates 30 Years

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

• Allen Cooper

• Alfonso Holston

• Carol Ceropski

• Charlotte Ohlmiller

• Charles Ricci

• David Kass

• David Rosenfeld

• Donald Nash

• Duane Schambach

• Elverse Alexander

• Frank Zimmerle

• James Lammle

• Jon Hultquist

• Josiane Branch

• Judi Payne

• Keith Day

• Lee Smith

• Loraine Leonard

• Marshall Horn

• Marvin Jackson

• Philip Rix

• Ralph Der Asadourian

• Richard Shilts

• Thomas Purcell

• Vickie Evans

• Walter Maksymec

 

CFTC CHARTER MEMBERS

There are 26 employees who are deserving of special mention on CFTC’s 30th anniversary. They are charter members who 

have been with the CFTC since its first day on April 21, 1975. Congratulations and thank you for your dedication!


Commission at a Glance

CFTC Mission

The mission of the CFTC is to protect market users and the 

public from fraud, manipulation, and abusive practices 

related to the sale of commodity futures and options and 

to foster open, competitive, and financially sound commodity futures and option markets

Keeping Pace with Change

During FY 2005, the Commission continued to focus its 

actions on modernizing regulation and keeping pace with 

rapidly changing markets

In February 2004, the Commission issued Keeping 

Pace with Change, a strategic plan for FY 2004-FY 2009

This plan reflects the new direction of the agency, driven 

by the CFMA, including three key objectives: 1) modernizing rules affecting trading platforms and market intermediaries; 2) permitting futures based on single stocks 

or narrow-based stock indices; and 3) providing legal 

certainty for over-the-counter derivatives

The plan also reflects the enormous and continuing 

changes in the markets, including rapid growth in volume, 

globalization, and the movement from open outcry on exchange trading floors to all-electronic trading from widely 

dispersed geo-graphic locations

CFTC History and Transformation

Futures contracts for agricultural commodities have been 

traded in the U.S. for more than 150 years and have bee

under Federal regulation since the 1920s. Congress created the CFTC in 1974 as an independent agency with the

mandate to regulate commodity futures and option markets in the U.S. At the time of the Commission’s founding, the vast majority of futures trading took place in th

agricultural sector. These contracts gave farmers, ranchers,

distributors, and end-users of everything from corn to 

cattle an efficient and effective set of tools to hedge against 

FTE (STAFF YEARS) price movements

0

500

1000

1500

2000

2500

 94 95 96 97 98 99 00 01 02 03 04 05 06 (est) (est)

CONTRACT TRADING VOLUME (MILLIONS)

Growth in Volume of Futures & Option Contracts Traded & FTEs

Sources: National Finance Center for FTE data and, Futures Industry Association for Contract Volume data

In the past 12 years, trading volume has doubled while

staffing levels have on average decreased in recent years.

INDICATORS OF INDUSTRY GROWTH COMPLEXITY


Over the years, however, the futures industry has 

become increasingly complex. While farmers and ranchers continue to use the futures markets as actively as ever

to effectively lock in prices for their crops and livestock 

months before they come to market, highly complex 

financial contracts based on interest rates, foreign currencies, Treasury bonds, stock market indices, and other 

products have far outgrown agricultural contracts in trading volume. The latest statistics show that approximately

five percent of on-exchange derivatives activity occurs in 

the agricultural sector, while financial derivatives make 

up approximately 86 percent, and other contracts, such as 

those on metals and energy products, make up about nine 

percent. In recognition of this changing environment,

Congress and the President reauthorized the Commission 

through FY 2005 with the passage of the CFMA in December 2000. The CFMA repealed the ban on single stock

futures and instituted a regulatory framework for such 

products to be administered jointly by the CFTC and the 

Securities and Exchange Commission (SEC). It codified

the principal provisions of a new regulatory framework 

adopted earlier by the Commission. It also brought legal

certainty to bilateral and multilateral trading in over-thecounter markets and clarified the CFTC’s jurisdiction over 

the retail, off-exchange foreign currency market. It gave the

CFTC authority to regulate clearing organizations in a way 

which enables the CFTC to more effectively foster open, 

competitive, and financially sound markets

Organization and Locations

The Commission consists of five Commissioners who are 

appointed by the President to serve staggered five-year 

terms. All Commissioners are confirmed by the Senate. N

more than three Commissioners at any one time may be 

from the same political party. With the advice and consent

of the Senate, the President designates one of the Commissioners to serve as Chairman

The Commission’s organization chart is aligned with 

its 2004–2009 Strategic Plan, and its functions are divided 

between program policy and internal management. The

Office of the Chairman oversees the Commission’s principal divisions and offices that administer the policies, regulations, and guidance regarding the Commodity Exchange 

Act (CEA). The Office of the Executive Director, by delegation of the Chairman, directs the internal management

of the Commission, ensuring that funds are responsibly 

accounted for and that program performance is measured 

and improved effectively

Attorneys at the Commission work on complex and 

novel legal issues in litigation, regulation, and policy 

development. They participate in administrative and

civil proceedings, assist U.S. Attorneys in criminal proceedings involving futures law violations, and provid

legal advice to the Commission on policy and adjudicatory matters

Auditors examine records and operations of futures 

exchanges and firms for compliance with the CFTC rules 

on financial requirements and trade practices

Economists evaluate filings for new futures and option contracts and amendments to existing contracts to 

ensure they meet the Commission’s regulatory standards

Economists also analyze and advise the Commission on 

the economic effect of various Commission and industry 

actions and events. In addition, economists monitor trading activity and price relationships in futures markets to

detect and deter price manipulation and other potential 

market disruptions

Futures Trading Specialists perform regulatory and 

compliance oversight of alleged fraud, market manipulations, and trade practice violations

FISCAL YEAR

CONTRACTS

0

 200

 400

 600

 800

1,000

1,200

93 94 95 96 97 98 99 00 01 02 03 04 05 06 (est) (est)

ACTIVELY TRADED FUTURES & OPTION CONTRACTS

The number of actively traded contracts traded on U.S. exchanges 

has almost quadrupled in the last decade, 1993–2004.

Source: CFTC Permanent Records

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
The CFTC is headquartered in Washington, D.

Regional offices are located in Chicago and New York; with 

smaller offices in Kansas City and Minneapolis

Additional information about the Commission’s history 

and its divisions can be obtained from the Commission’s 

Office of External Affairs or through its Web site, www.cftc.gov.

NUMBER OF CFTC REGISTERED DERIVATIVES CLEARING ORGANIZATIONS 2000–2005

CLEARING ORGANIZATIONS DEC. 21, 2000 SEP. 30, 2001 SEP. 30, 2002 SEP. 30, 2003 SEP. 30, 2004 JUL. 20, 2005

AE Clearinghouse ✓

BTEX ✓	 ✓	 ✓

CCorp ✓	 ✓	 ✓	 ✓	 ✓	 ✓

CBOT ✓	 ✓

CME ✓	 ✓	 ✓	 ✓	 ✓	 ✓

Energy Clear ✓	 ✓	 ✓

FCOM ✓	 ✓	 ✓	 ✓

GCC ✓	 ✓

Hedge Street ✓	 ✓

ICC ✓	 ✓	 ✓	 ✓

KCBT ✓	 ✓	 ✓	 ✓	 ✓	 ✓

LCH ✓	 ✓	 ✓	 ✓

MGE ✓	 ✓	 ✓	 ✓	 ✓	 ✓

NYCC ✓	 ✓	 ✓	 ✓	 ✓	 ✓

NYMEX ✓	 ✓	 ✓	 ✓	 ✓	 ✓

OCC ✓ ✓	 ✓	 ✓

ONXCC ✓	 ✓	 ✓	 ✓

TOTAL 9 11 14 14 10 11

1
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

COMMODITY FUTURES TRADING COMMISSION ORGANIZATION STRUCTURE

Office of the 

Inspector General

Equal Employment

Opportunity

Office of General Counsel Office of Executive Director

Office of the 

Secretariat

Office of 

External Affairs

Office of 

International Affairs

Division of Clearing &

Intermediary Oversight

Division of 

Market Oversight

Division of 

Enforcement

Office of 

Chief Economist

Eastern Region

(New York)

Central Region

(Chicago)

Eastern Region

(New York)

Central Region

(Chicago)

Eastern Region

(New York)

Central Region

(Chicago)

Kansas City

Office

Kansas City

Office

Minneapolis

Office

Kansas City

Office

Commissioner Commissioner CHAIRMAN Commissioner Commissioner
Commission Goals and Objectives

The Commission ensures, through effective oversight, 

the economic vitality of the commodity futures and option markets and their important function of providing a 

mechanism for price discovery and a means of offsetting 

price risk

The mission of the CFTC is accomplished through 

pursuing three strategic goals, each focusing on a vital area 

of regulatory responsibility: 

1. Ensure the economic vitality of commodity futures and

option markets

2. Protect market users and the publi

3. Ensure market integrity in order to foster open, competitive, and financially sound market

Goal Overviews

Goal One: Ensure the Economic Vitality of 

Commodity Futures and Option Markets

The focus of this goal is the marketplace. If the U.S. commodity futures markets are protected from and are free 

abusive practices and influences, they will better operate 

to fulfill their vital role in the nation’s market economy 

and the global economy, accurately reflecting the forces of 

supply and demand and serving market users by fulfilling 

an economic need

Desired Outcomes of Goal One: 

• Markets that accurately reflect the forces of supply and 

demand for the underlying commodity and are free of 

disruptive activity

• Markets that are effectively and efficiently monitored 

to ensure early warning of potential problems or issues 

that could adversely affect their economic vitality

Performance Summary Highlights for Goal One

• Conducted daily surveillance of 669 active futures and 

option contracts. Particularly close monitoring was

conducted on the energy futures markets, which experienced periods of high prices and high price volatility 

due to, among other things, low stocks, tight production 

capacity, geopolitical tension in the Middle East, strong 

world economic demand, and natural disasters

• Reviewed, under the Commission’s certification procedures for listing new products, 286 new contracts, 

including 91 security futures products (SFPs), and under 

its certification procedures, 125 product rule changes

Staff reviewed the terms and conditions of contracts 

submitted under certification procedures to ensure that 

statutory and regulatory anti-manipulation requirements were met and to provide essential background 

information in order to conduct market surveillance

• Filed ten enforcement actions against a total of 19 individual traders and companies alleging their participation in false reporting and attempted manipulation in 

Performance Highlights
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

the energy markets. Four energy-related enforcement

actions were settled in FY 2005 therein imposing $45.6

million in civil monetary penalties. Through FY 2005,

the Commission’s activity in this program area has 

resulted in 32 enforcement actions, charging 49 defendants and 24 settlements that included a total of nearly 

$300 million in civil monetary penalties

• Provided economic and statistical analysis for enforcement cases involving foreign currencies, energy products, and several recently developed derivatives products, and an examination of the appropriate role for 

Federal oversight of event-type markets

• Conducted 72 market move reviews. Such reviews met

the objectives of: assuring that registrants and financial 

intermediaries are not impaired by market volatility or 

disruptions to meet financial obligations; and detecting 

any failure by a DCO to meet its obligations or other 

impairment of a registrant

• Collected and analyzed approximately 44,000,000 line 

items of data regarding large trader activity and approximately 16,000 reports identifying the large traders

• Reviewed three filings by entities that notified the Commission of their intention to operate as exempt markets 

under the CEA; and reviewed 10 rule amendment approval requests for existing futures and option contracts

In addition, staff: 1) reviewed the terms and conditions 

of contracts submitted for approval to ensure that the 

contract terms and conditions were in compliance with 

Commission regulations and policies and did not raise 

any public interest issues; 2) reviewed 262 exchange 

rule submissions that contained 1,237 separate new 

rule amendments; 3) and reviewed six applications of 

entities seeking to become a designated contract market

Goal Two: Protect Market Users and the Public

While our country reaps the rewards of an explosive growth 

in the futures industry, the risk of fraud and manipulation is always present. The trend toward electronic trading

platforms and the expanding complexity of trading instruments have challenged the Commission to reconfigure 

its ability to identify, investigate, and take action against 

parties involved in violating applicable laws and regulations. If evidence of criminal activity is found, matters are

referred to state or Federal authorities for prosecution under 

criminal statutes

Over the years, the Commission has taken action in 

a number of cases involving manipulation or attempted 

manipulation of commodity prices. The Sumitomo copper

case and the Hunt brothers silver case are well known examples. A variety of administrative sanctions, such as bans

on futures trading, civil monetary penalties, and restitution 

orders, is available to the Commission. The Commission

may also seek Federal court injunctions, asset freezes, and 

orders to disgorge ill-gotten gains

Desired Outcomes of Goal Two:

• Violations of Federal commodities laws are detected 

and prevented

• Commodity professionals meet high standards

• Customer complaints against persons or firms 

registered under the Act are handled effectively and 

expeditiously

Performance Summary Highlights for Goal Two

• Typically, the Commission has more than 250 active 

litigation and investigation matters open at any time

During FY 2005, two-thirds of the Commission’s enforcement actions were filed in this performance area

For example, the Commission filed an action closing 

down Philadelphia Alternative Management, which had 

hidden trading losses in excess of $100 million. The

CFTC also participated in the joint agency enforcement 

action as a result of the Bayou hedge fund collapse. The

Enforcement program further continued to combat 

retail foreign currency (forex) “bucket shops” bringing 

its total, post-passage of the CFMA accomplishments in 

this area to 79 enforcement actions filed with approximate sanctions of $115 million in restitution and $170 

million in civil monetary penalties

• Filed nine enforcement actions related to commodity pools (including “hedge funds”), and commodity 

pool operators (CPOs); filed eight enforcement actions 

related to fraud involving commodity trading advisors 

(CTAs), managed accounts, and trading systems; filed 11 

enforcement actions related to futures commission merchants (FCMs), introducing brokers and their associated 
persons; and filed a total of 17 enforcement actions involving foreign currency trading. The Commission also

filed two enforcement actions involving other illegal 

off-exchange trading

• Obtained dismissal of one significant case before 

the U.S. Supreme Court. The result in that case, R.

Fitzgerald & Co. v. CFTC, 125 S. Ct. 808 (Dec. 13, 200

(Mem.), preserved the ruling obtained by the Commission in the U.S. Court of Appeals for the Eleven

Circuit in an important anti-sales fraud prosecution

See e.g., CFTC v. Wall Street Underground, 128 Fed. App

726 (10th Cir. 2005); CFTC v. Fremer, 128 Fed. Ap

104 (11th Cir. 2005); CFTC v. Gibralter Monetary Corp.,

No. 04-13828-I (11th Cir. May 9, 200

• Took part in a variety of domestic and international efforts, including task forces and working groups designed 

to keep market participants abreast of new developments in financial crimes and to coordinate governmental responses to common issues including the Corporate Fraud Task Force, anti-money laundering efforts, 

Telemarketing and Internet Fraud Working Group, the 

Consumer Protection Initiatives Committee, and the 

Securities and Commodities Fraud Working Group

• Issued 37 opinions and other orders (including orders 

issued pursuant to delegated authority), 19 of which 

were final dispositions of cases pending on the Commission’s docket

• Initiated a review of the National Futures Association’s 

(NFA) program for the oversight of CPOs and CTAs for 

compliance with Commission and NFA rules and regulations. The review specifically focused on: registration

of CPOs and CTAs; review of CPO and CTA disclosure 

documents; and review of CPO annual financial statements, sales practices, and disciplinary process. Staff is

currently finalizing its report, which is expected to be 

presented to the Commission by the close of the first 

quarter of FY 2006

• Consulted with staff of the U.S. Treasury Departmen

and various Federal financial regulators to develop antimoney laundering regulations required under the USA 

PATRIOT Act, including, providing guidance to certain 

customers of CTAs and working with other agencies to 

complete information-sharing agreements

• Consumer education and outreach is an acknowledged 

goal of the Commission and part of its effort to protect 

the public from possible wrongdoing on the part of 

firms and industry participants. The Commission’s

Web site is continuously updated with consumer 

protection advisories and enforcement bulletins to 

alert and educate the public. The Web site is www.cftc

gov/cftc/cftccustomer.htm

Goal Three: Ensure Market Integrity in Order 

to Foster Open, Competitive, and Financially 

Sound Markets

The Commission also focuses on issues of market integrity, seeking to protect: 1) the economic integrity of the 

markets so that they may operate free from manipulation; 

2) the financial integrity of the markets so that the insolvency of a single participant does not become a systemic 

problem affecting other market participants; and 3) the 

operational integrity of the markets so that transactions 

are executed fairly and proper disclosures to existing and 

prospective customers are made

Desired Outcomes of Goal Three:

• Clearing organizations and firms holding customer 

funds have sound financial practices

• Commodity futures and option markets are effectively 

self-regulated

• Markets are free of trade practice abuses

• The regulatory environment is flexible and responsive 

to evolving market conditions

Performance Summary Highlights for Goal Three

• Performed 11 audits (one DCO and 10 FCMs) to test 

compliance with the Commission’s financial requirements for the safekeeping of customer funds. In addition,

staff processed approximately 2,700 financial reports filed 

by registrants. As a result of on-going program efforts

such as these, no regulated customer funds were lost in 

FY 2005, meeting the program’s objective of ensuring 
sound financial practices of clearing organizations and 

firms holding customer funds

• Filed 12 actions in this performance area during FY 2005 

including an action imposing restitution and a civil 

monetary penalty against an accounting firm for failure 

to detect fraud perpetrated by a CPO and several statutory disqualification actions against registrants. In addition, the Commission assisted in the successful criminal

prosecution of a registered floor broker who illegally 

converted customer funds in violation of the CEA

• Completed two rule enforcement reviews of self-regulatory organization (SRO) compliance programs. One

of the rule enforcement reviews completed during FY 

2005 was a review of OneChicago’s market surveillance, 

audit trail, trade practice surveillance, disciplinary, and 

dispute resolution programs. The other rule enforcement review completed during FY 2005 was a review of

the Chicago Board of Trade’s (CBOT) audit trail, trade 

practice surveillance, disciplinary, and dispute resolution programs. Staff found that both OneChicago and

CBOT maintain adequate programs with respect to the 

areas reviewed

• Worked with NFA staff regarding retail foreign currency 

trading by FCMs and their affiliates. The NFA submitted additional rules concerning retail foreign currency

on August 22, 2005, which the Commission approved 

on September 15, 2005. These rules are intended to

address on-going problems in the off-exchange retail 

forex market by allowing NFA to impose stricter net 

capital requirements on certain persons registered 

as FCMs engaging in retail forex transactions, and 

to extend certain antifraud and customer protection 

rules to a greater number of off-exchange retail forex 

transactions, where NFA members act as intermediaries 

but the counterparty is not an NFA member. Members

are also required to provide customers with information about NFA’s registrant database (BASIC) so that 

they may review the registration status and disciplinary 

history of those who solicit them

• Furthered the development of the offer and sale of 

foreign futures and option transactions (U.S. customer

trading on non-U.S. markets) in FY 2005. The Commission issued an order to NFA authorizing NFA to confi

exemptive relief to certain firms acting in the capacity 

of an FCM that are subject to regulation by a foreign 

futures authority or that are members of a foreign SRO 

in a particular jurisdiction. These firms are referred to in

the order as cross-border futures brokers (CBFBs). The

Commission previously had authorized NFA to confirm 

exemptive relief solely to firms subject to regulation by 

a single foreign futures authority or that are members of 

a foreign SRO

• Continued work on the International Organization 

of Securities Commissions (IOSCO) Multilateral 

Memorandum of Understanding concerning Consultation, Cooperation and the Exchange of Information 

(MMOU), which is an important and meaningful 

undertaking for regulators to expand cooperation by 

establishing specific minimum standards for securities 

and futures regulators in the area of information-sharing. During FY 2005, Belgium, with which the Commission previously did not have an information-sharing

arrangement, became a signatory to the MMOU

• Issued or reviewed requests for no-action relief in connection with: 1) foreign exchange-traded foreign stock 

index futures contracts; 2) the offer and sale of foreign 

exchange-traded foreign stock index futures contracts 

in the U.S. requests by foreign boards of trade t

permit placement of electronic terminals in the U.

without requiring contract market designation for 

those boards of trade; 3) relief from the Commission’s 

default contract reporting levels for futures and option 

contracts so that Eurex U.S.’s new 3-Year U.S. Treas

Notes (3-Year T-Notes) contract would be subject to a 

reporting level of 750 contracts, rather than the default 

level of 25 contracts; and 4) easing the burden of 

reporting on market participants, while preserving the 

Commission’s ability to effectively surveil trading in 

the 3-Year T-Note contract

• Provided technical assistance to foreign regulators from 14 

foreign jurisdictions visiting the U.S. and to on-site visit

to foreign jurisdictions. Sharing information enhances the

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
knowledge of other regulators and facilitates the development of high levels of global regulatory protections

• The Commission had two advisory committee meetings in FY 2005. On January 12, 2005, the Global Markets Advisory Committee (GMAC) met, and on April

28, 2005, the Technology Advisory Committee (TAC) 

met. The GMAC was created by the Commission for

the purpose of obtaining input on international market issues that affect the integrity and competitiveness 

of U.S. markets and firms engaged in global busine

The January 2005 GMAC meeting agenda included 

developments regarding the currency regime of China, 

with presentations by officials of the U.S. Treasur

Department and a representative of the Chicago Mercantile Exchange; segregated/secured funds discussion 

lead by the GMAC Subcommittee on Bankruptcy; and 

CFTC reauthorization, with updates by House and Senate staff. The TAC was created by the Commission in

October 1999 to obtain input on emerging technologies, the impact of technology on financial services and 

commodity markets, and the appropriate legislative 

or regulatory response to increasing use of technology 

in the markets. TAC members represent U.S. designated contract markets, SROs, financial intermediarie

market users, and traders. The April 2005 TAC meeting

agenda included discussion of: 1) what constitutes 

“prior art” in the patents process; 2) intellectual property in trading and settlements technology; 3) restrictions on the usage of exchange settlement prices; and 

4) market data piracy

Strategic Planning and Reporting

The three goals of the Strategic Plan 2004–2009 establish 

appropriate priorities for the Commission in enabling a very 

small organization to be an effective regulator in a rapidly 

changing marketplace. The preceding overviews demonstrate

a coordinated set of objectives and actions flowing from the 

goals that shape our work into a cohesive whole

The Government Performance and Results Act 

(GPRA) requires the Commission to establish meaningful 

performance standards for activities for the Commission 

as a whole and for the statutorily authorized programs 

that it administers

For the end of FY 2005, this Performance and Accountability Report shows the extent to which these actions translated 

into meaningful results and successful investment of public 

funds. This report also includes a discussion of how the

Commission will refine our policy and management activities during FY 2006 to enable us to achieve greater success

For example, as outlined in the Commission’s FY 

2007 Budget Estimate to the Office of Management and 

Budget (OMB), a fourth goal, “Organizational and 

Management Excellence” will be added to the CFTC’s 

Strategic Plan in FY 2006. It will clearly articulate goals

for ensuring the Commission has the right people, in 

the right place, at the right time, doing the right work

The plan sets up a framework for how information 

technology investments can improve the work processes 

of the Commission and the services for its customers 

and partners. The plan also focuses the Commission’s

efforts to ensure that appropriate internal controls and 

financial systems are in place to provide managers with 

accurate and timely financial and performance information for managing day-to-day operations

The accurate and timely financial and performance 

information will allow the Commission to integrate 

performance expectations and funding requirements 

effectively. Key target results for the proposed fourth goal

include the following:

• The Commission will improve internal controls and 

data integrity, as reflected in three sequential clean 

audit opinions and the ability to use financial data on 

a day-to-day basis to help inform management and 

programmatic decisions Commission-wide

• The Commission will improve the way it exchanges 

data and interacts with customers by enhancing the use, 

management, and security of information technology 

investments

• The Commission will identify and refine performance 

measures for its programs, using data and analysis to 

inform funding recommendations and focusing on the 

results expected from the programs
• The Commission will employ top-notch professionals 

with strong academic records and excellent analytical 

and problem-solving skills for its important work

It will continue to implement Section 10702 of Public 

Law 107-171, the Farm Security and Rural Investment Act 

of 2002, which removes the CFTC from coverage under 

certain provisions of Title V of the U.S. Code that gover

basic pay, benefits, and compensation in all pay systems 

and removes the CFTC from the Senior Executive Service

This authority allows the Commission to compete 

with the six agencies subject to the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) 

of 1989 (12 U.S.C.1833b (a

 for the scarce talent 

required to meet its mission

Integration of Performance with Budget 

and Finance

Focusing on results and accountability with performance 

monitoring and financial reporting is sound practice. One

critical gauge of how well taxpayer dollars are being used 

is for an agency to link the performance of its programs to 

subsequent budget determinations

The Commission constantly seeks to strengthen the 

linkage between financial investments and program quality

We do this not only through the development of program 

measures, but also through various reporting mechanisms 

and effective budget management. This report is one

example of how we provide comprehensive, accurate information to the American public in a timely manner. The

following are some other major activities related to budget 

and performance integration

Program Assessment Rating Tool (PART). The 

OMB has systematically assessed the quality of government 

programs over the past three years. Through the PART, OMB

works with Federal agencies to judge the effectiveness of 

programs with regard to their stated purpose, strategic planning, internal management, and results and accountability

Although primarily a diagnostic tool for programs, PART 

reviews provide critical information that can be used to 

establish funding priorities for the subsequent budget cycle

In December 2004, the Commission’s Enforcement 

program was evaluated by OMB and the Commission. The

program received top scores for purpose and design 

as well as management. Opportunities for improvement

existed in the areas of strategic planning and program 

results measurement

Alignment of Financial Data and Performance 

Priorities. This Performance and Accountability Repor

strengthens the alignment of financial data and performance priorities by again identifying appropriations and 

net costs for the goals of the CFTC Strategic Plan. Each

Commission program is aligned with the same strategic 

goal(s) as a year ago, enabling both our appropriations 

and our estimated net costs to clearly reflect the discrete 

priorities of the CFTC Strategic Plan

Integrating Performance Plan into Budget. During the past year, the Commission incorporated its performance plan into its submission of the Commission’s FY

2007 Budget Estimate to OMB. For the FY 2007 budget cycle,

the budget and annual performance plan were formulated 

concurrently and are increasingly integrated

Measurement Challenges. Commission’s challenges of linking performance results to the budget are 

complicated by the fact it is difficult to separate the 

Commission’s impact from other events affecting futures 

and option markets

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

1

The FIRREA agencies are the Federal Deposit Insurance Corporation, the Comptroller 

of the Currency, the National Credit Union Administration Board, the Federal Housing 

Finance Board, the Farm Credit Administration, and the Office of Thrift Supervision.
Financial Overview

With U.S.-based jurisdiction for regulating the commodity futures and options trading industry, the CFTC cover

a great deal of ground – both domestically and abroad

Unlike many other financial regulators, the Commission 

relies solely on appropriations to cover salaries, expenses, 

and on-going operations. Any fees or other monies, totaling many millions of dollars, collected during the year are

deposited into U.S. Treasury accounts and flow into it

general fund

Operations in FY 2005 achieved marked improvements in our financial management and reporting capabilities. Key enhancements were achieved with account

relationship analysis, timely reporting, and the introduction of new management reports. The Commission

derived maximum benefits from these enhancements as 

they helped streamline reconciliation processes. Moreover,

more timely data led us to generate new executive management reports to monitor the progress of our programs

The Commission’s ability to demonstrate that effective 

controls were in place over financial reporting ensured that 

an unqualified audit opinion was rendered. The Commission is confident that this will be sustained through

effective stewardship. Management recognizes the need

for accountability, and fully supports the culture change 

necessary to implement more thorough assessments of risk 

factors that can have an impact on financial reporting

Improved management reporting, in turn, enables 

managers to be accountable and supports the concepts of 

the GPRA and the principles of the President’s Management Agenda. Both GPRA and the President’s Management Agenda require the Commission to: 1) establish a

strategic plan with programmatic goals and objectives; 

2) develop appropriate measurement indicators; and 3) 

measure performance in achieving those goals

During FY 2005, we improved our management 

reporting to include monthly fiscal reporting for program 

managers. Improved reporting capabilities enable the Commission to integrate program results with fiscal costs that

assist in measuring program results against performance

Our financial reporting capabilities have become routine, enabling us to extend our financial analysis for both 

program management and fiscal reporting in less time; 

thereby utilizing Commission resources more efficiently 

and effectively

Lines of Business

The Commission managed an appropriation of approximately $93.5 million in FY 2005, of which 34 percent

went primarily toward market oversight activities. The

futures markets continue to grow rapidly, with the 2006 

trading volume expected to be twice that of 2000, the year 

the CFMA was passed

Financial Highlights
In 2000, there were 12 U.S. futures exchanges. Today, the

are 20 designated contract markets and another 13 trading 

platforms covered by the CFMA. The number of markets

subject to some level of Commission oversight has tripled

Similarly, more than 600 new products have been brought 

to market since 2000, versus fewer than 200 in the three 

years preceding the CFMA’s passage

These are very positive developments for market users, but they challenge the human capital resources of the 

Commission. Moreover, as derivatives markets generally

become more global in nature, the Commission is increasingly called upon to register overseas clearinghouses and 

futures firms, to approve complex cross-border trading and 

clearing linkages, and to then perform effective on-going 

supervision. This requires the Commission to invest resources in developing and maintaining effective relationships with foreign regulatory authoritie

Of the Commission’s three strategic goals, the largest 

portion of the Commission’s resources, 42 percent, was 

allocated towards Goal Two, with activities designed to 

protect market users and the public. The Commission’s

aggressive enforcement actions in the energy sector reflect 

an approach to market oversight that emphasizes tough 

enforcement actions against wrongdoers without creating 

overly burdensome regulations

As energy price escalations impact the U.S. economy

the Commission must do its part to ensure that market 

users and the public are protected. Moreover, retail foreign

currency fraud has become an increasing problem particularly with the growth of the Internet, which enables access 

to foreign scam artists and parties who would evade our 

safeguards and shift funds to off-shore locations

The Commission needs to calibrate its resources to 

actively pursue increasingly sophisticated and global fraud 

that may have implications on national security as well as 

customer protection. No less important, but using a relatively few number of people, activities to ensure market

integrity in nonexempt markets require the Commission 

to rely on self-regulation and to leverage technology

With the CFMA, the Commission was, for the first 

time, assigned separate supervisory responsibility over 

futures clearinghouses. Since 2000, seven clearinghouses

have been designated, three of which are completely new 

institutions and another of which is an overseas institution. Clearinghouses, as central counterparties in the

futures markets, are critical to the financial integrity of 

markets and intermediaries. Their proper supervision

requires the Commission to devote about 26 percent of its 

resources executing oversight programs

In addition, the USA PATRIOT Act of 2001 assigned to 

the Commission new responsibilities to work with other 

Federal financial regulators to develop and then implement 

rules and practices geared toward effectively enforcing key 

provisions, such as anti-money laundering protections. Fulfilling this important new national security responsibility

requires the Commission to devote resources to developing 

new workforce competencies, practices, and procedures

As noted earlier, unlike most other Federal financial 

regulators who receive fees or other monies collected during 

the year, the Commission relies on appropriations for 100 

percent of its total operating budget. Therefore, management

must be diligent in its allocation and administration of 

resources. This is a key driver behind the adoption of a new

fourth goal in FY 2006 addressing management excellence

Financial Position

The Commission’s financial statements, which begin on 

p. 64, received an unqualified audit opinion, issued by

the independent accounting firm of KPMG LLP. In FY

2004, KPMG was only able to render an opinion on the 

Commission’s balance sheet because the other statements 

were dependent on prior year activity that had not been 

audited. Preparing these statements is part of the Commission’s continuing efforts to achieve financial management

excellence and to provide accurate and reliable information that is useful for assessing performance and allocating 

resources. Commission management is responsible for

the integrity and objectivity of the financial information 

presented in the financial statements

The financial statements presented in this report have 

been prepared from the accounting records of the CFTC in 

conformity with generally accepted accounting principles 

(GAAP) in the United States. GAAP for Federal entities

are the standards proscribed by the Federal Accounting 

Standards Advisory Board

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Balance Sheet. The balance sheet presents, as of a 

specific point in time, the economic value of assets and 

liabilities retained or managed by the Commission. The

difference between assets and liabilities represents the net 

position of the Commission

The balance sheet displayed on p. 64 reflects total assets of $54.2 million, a 13 percent decrease from FY 20

This decrease is attributable to custodial fines and interest 

receivables from the Civil Monetary Sanctions Program

The majority of the liabilities, 73 percent, consist 

of custodial liabilities. Custodial receivables (non-entity

assets) are those for which fines and penalties have been 

assessed and levied against businesses for violation of law

The CFTC litigates against defendants for alleged violations of the CEA, as amended. Violators may be subject

to a variety of sanctions including fines, injunctive orders, 

bars or suspensions, rescissions of illegal contracts, disgorgement, and restitution to customers

Historical experience has indicated that a high 

percentage of custodial receivables prove uncollectible

The methodology used to estimate the allowance for 

uncollectible amounts related to custodial accounts is 

that custodial receivables are considered 100 percent 

uncollectible unless otherwise noted in the judgment. An

allowance for uncollectible accounts has been established 

and included in “accounts receivable” on the balance 

sheet. The allowance is based on past experience in the

collection of accounts receivable and analysis of outstanding balances. Accounts are re-estimated quarterly based

on account reviews and determination that changes to the 

net realizable value are needed

Several factors influenced the change in the Commission’s net position during FY 2005. This includes the

timing of the execution of prior year write-offs of old debt 

and the overall case management and analysis of debt by 

the Division of Enforcement

Statement of Net Cost. The statement of net cost is 

designed to present the components of the net cost of the 

Commission. Net cost is the gross cost incurred less any

revenues earned from Commission activities. The statement of net cost is categorized by the Commission’s strategic goals. The Commission experienced a four percen

increase in total net costs during FY 2005

Goal 1, which tracks activities related to Market 

Oversight, experienced a nine percent increase in costs 

over FY 2004

Goal 2 is representative of efforts to protect market 

users and the public. Costs are spread across three outcomes. However, the majority of costs are related to detecting and preventing violations of Federal commodity la

These programs experienced a five percent cost increase in 

FY 2005

Goal 3, which is representative of efforts to ensure 

market integrity, spreads costs across the achievement of 

four outcomes. The distribution of costs for maintaining self-regulated markets was that of costs incurred for

other outcomes. Overall, a one percent cost decrease was

incurred in FY 2005

Statement of Budgetary Resources. This statement 

provides information about the provision of budgetary 

resources and their status as of the end of the reporting period. Information in this statement is consistent

with budget execution information and the information 

reported in the Budget of the United States Government

The statement displayed on p. 67 shows that the

Commission had $101.8 million in budgetary resources,

$0.77 million of which remained unobligated, with $3

million not available at year-end. The $3 million is only

available for making upward and downward adjustments 

TOTAL ASSETS VS. TOTAL LIABILITIES

$0

10

20

30

40

50

60

70

80

FY 2005 FY 2004

IN MILLIONS

Total Assets Total Liabilities

$54.2

$39.1

$62.2

$44.4

2
to obligations. The Commission had $96 million in net

outlays for FY 2005

Statement of Financing. This statement demonstrates the relationship between an entity’s proprietary and 

budgetary accounting information. It links the net cost of

operations (proprietary) with net obligations (budgetary) 

by identifying key differences between the two statements

This statement is structured to identify total resources used 

during the fiscal year, and then makes adjustments based 

on whether the resources were used to finance the net 

obligations or net cost

This statement, displayed on p. 69, identifies $95.

million of resources used to finance activities, $4.9 million

of resources used to finance items not part of the net cost of 

operations, and $0.043 million of components of net cost

of operations that will not require or generate resources

Statement of Custodial Activity. This statement 

provides information about the sources and disposition of 

non-exchange revenues. Non-exchange revenue at the CFTC

is primarily represented by fines, penalties, and forfeitures 

assessed and levied against businesses and individuals for 

violations of the CEA, as amended. Other non-exchange

revenue includes registration, and filing and appeal fees, as 

well as general receipts. The statement of custodial activity

displayed on p. 70 reflects total non-exchange revenue collected (cash collections) of $35 million and a transfer of the

collections to the U.S. Treasury in the same amou

Look Ahead – Possible Effects of Existing 

Events and Conditions

The commodity futures and option markets are burgeoning 

and dynamic. These trillion dollar markets, of vital importance to the economy, are expanding steadily in both volume

and new users, and their complexity is rapidly evolving with 

new technologies, globalization, product innovation, and 

greater competition. The integrity of these markets is an essential defense against economic disruption of the marketplace and, by extension, the American econom

Almost everything in the futures industry has fundamentally changed over the last 20 years – from the products 

that are trading to the platforms on which they are traded

As the Commission looks ahead, there are even more 

broad-based changes on the horizon which will have a 

dramatic impact on our markets

Additionally, 20 percent of the Commission’s workforce, 

including 28 percent of its leadership positions, are eligible 

to retire during FY 2006. The Commission must take immediate steps to preserve its intellectual human capital and

expertise in a rapidly changing industry. The Commission

must also strive to fully coordinate its strategic technology 

investments with human capital management

Rapid development in foreign economies will lead to 

competition for U.S. exchanges and further lead to cross-border trade in derivatives-related financial services between th

U.S. and other countries or multi-nation unio

Continued technological developments will continue 

to reduce floor-based trading and increase use of electronic 

trading systems. The same technology advancement and increased globalization will lead to an even greater number of

exchanges and blurring of jurisdictional lines distinguishing 

foreign and domestic boards of trade

Increasingly diversified U.S. economic activity will resul

in added use of exchange-traded and off-exchange derivatives 

with proliferation of contract-types, trading platforms, and 

clearing methods

In recent years, the Commission has been able to 

operate at a level needed to ensure that it has the tools and 

resources necessary to do the job expected of it by the Congress, the Administration, and the American people

Many of the choices the Commission must make about 

how it will use its limited resources are extremely difficult

Future trends in the market indicate rapid overall growth 

in trading, computer-based trading, complex contracts, use 

of international transactions and exchanges, and exploding 

over-the-counter markets

The Commission primarily uses its resources to 

enforce the law aggressively and to pursue wrongdoing in 

the marketplace. To continue to be an effective regulator,

the Commission will need to continue to rely on partnerships and leveraging its resources with those of other 

agencies and industry groups. That will greatly assist the

Commission to confront the jurisdictional challenges 

created by innovation and the worldwide adoption of 

futures and option markets. This, coupled with a wide

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
array of new surveillance issues, will consume significant 

Commission resources

From an operational perspective, the Commission 

must diligently deploy its resources to fulfill its regulatory 

mandate. To do so, the Commission seeks to transform itself

along the following dimensions

Institutional Transformation. Activities and processes centering on governance, risk management, and 

compliance with laws and regulations are converging. To

be effective, the Commission must excel in all three areas

These long-term management issues require continued 

focus and sustained management commitment to ensure 

future success

The Commission will concentrate on the costs of 

identifying and controlling institutional risks, specifically, 

the risk of impairment to the Commission’s operations 

model, reputation, and financial condition from failure to 

fully comply with laws and regulations, internal controls, 

and taxpayer expectations. The value of adopting such an

approach far outweighs the costs of implementation. Senior

management will build long-term value by making investments to comply with relevant regulations, embed compliance within the organization, manage the costs associated 

with compliance, and identify and address regulatory 

change. Our progressive focus on compliance will ensure

that fewer resources are necessary for remediation activity

Technology Transformation. Technology improvements will continue to empower the Commission in the 

future by increasing the availability of our most critical 

resource – time. Through these improvements, executive

management may spend additional time on policy analysis and decision-making rather than on the processing 

and compiling of key data. This trend at the Commission will continue to accelerate at an increasing rate as

many of our investments in systems and E-Government 

continue to mature

Major Commission investments currently include 

replacing the existing financial accounting system and 

full participation in the on-going E-Government initiative. This model will create public value by optimizing

government operations and providing effective oversight 

in the most efficient manner through a unified data 

network. To ensure success, the strategic technology

investment plan will be coordinated with human capital 

management and planning

Human Capital Transformation. A results-oriented 

enterprise requires that an organization clearly identify and 

achieve valuable goals. Our goals continue to reflect the

placement of strategic management of human capital at 

the top of the five key initiatives on the President’s Management Agenda

Specifically, the Commission is focusing significant resources on a consistent approach for the development and 

implementation of a human capital management plan. The

plan integrates human capital management with competitive sourcing and restructuring requirements, and has the 

solid foundation of data from its first strategic workforce 

planning competency-based gap analysis and workforce 

forecasting overview. Along with a talent management action plan, the human capital management plan provides

a narrative and literal template for creating a customized, 

prioritized action plan for the strategic management of human capital in each organizational unit of the CFTC

As noted in the Technology Transformation section, 

this planning will continue to be coordinated with other 

strategic infrastructure investments

The Commission’s continued commitment to strategic 

investments in both systems and human capital will result 

in a robust, cost-effective environment. This, in turn, provides taxpayers with an improved return on their investment in the Commissio
Management Challenges

The major management challenges facing the Commission 

include:

Financial Management. The Commission has faced 

many challenges in the past few years related to financial management, including regulatory compliance with 

Accountability of Tax Dollars Act, requiring the agency 

to develop financial statements and undergo an annual 

independent audit

In addition, regulatory reporting requirements 

continue to rapidly change through OMB’s revisions to 

financial reporting requirements (OMB Circular A-136, 

Financial Reporting Requirements) and management’s 

responsibility for internal control (OMB Circular A-123, 

Management’s Responsibility for Internal Control). The need

to comply with these requirements has been extremely 

difficult and labor intensive to maintain in its existing 

financial management system environment

In September 2005, the CFTC entered into an agreement with the Department of Transportation Enterprise 

Services Center (ESC), an OMB-approved Center of Excellence, to use their systems and services. During the next

year, the CFTC will migrate to ESC’s integrated financial 

management system, Delphi. ESC and its Delphi system will provide the agency with a system that supports

eTravel, financial transaction processing, and financial 

reporting – including monthly financial statements, asset 

and property management, and procurement. The agency

will face many challenges in making the migration to ESC 

and successfully implementing an integrated system to 

better meet and serve our financial management needs

Information Technology. The challenges that face the 

Commission relating to information technology include 

investment management, security, critical infrastructure 

protection, and contingency planning. The Commission

has made significant strides relating to its information 

technology challenges. The Commission accredited its

mission-critical systems in July 2005 and is on track to accredit its general support systems by December 31, 2005

In addition, the Commission completed a management study on mission-essential infrastructure protection 

that will test critical infrastructure interdependencies 

within the Commission. The Commission has also initiated several modernization efforts, including eLaw, to

increase enforcement case management efficiency

Program Performance and Accountability. The Commission has several challenges involving data reliability, 

program monitoring, and program accountability and compliance. As indicated in this report, the Commission will

address this issue in the newly proposed fourth goal of the 

Strategic Plan, and has made accountability a key priority

Human Capital. To address the challenge of managing and maintaining an appropriately skilled workforce, 

the Commission has undertaken a comprehensive human 

Management Challenges

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
capital management initiative. This initiative includes effective planning for future needs, recruitment, hiring, and

the development of the current workforce. It has identified

and addressed training gaps and mission-critical leadership 

positions. The Commission is aware that it still has much to

do and is diligently working to achieve its goals

Management Overview

The CFTC is committed to management excellence and 

recognizes the importance of strong financial systems and 

internal controls to ensure accountability, integrity, and 

reliability. This operating philosophy has permitted the

Commission to make significant progress in preparing for 

an expanded audit of its internal controls over financial reporting next year, as called for under OMB Circular A-123, 

Management’s Responsibility for Internal Control

The Commission relies on its performance management and internal control framework depicted below to:

• Ensure that its divisions and mission support offices 

achieve their intended results efficiently and effectively

• Ensure the maintenance and use of reliable, complete, 

and timely data for decision-making at all levels

The Commission strongly believes that the rapid 

implementation of audit recommendations is essential 

to improving its operations

Integration of Commission strategic, budget, and performance data permits management to make individual 

assurance statements with confidence. Moreover, datadriven reporting provides the foundation for Commission

staff to monitor and improve its control environment

Federal Managers’ Financial Integrity Act 

During FY 2005, in accordance with the Federal Managers’ 

Financial Integrity Act (FMFIA), and using the guidelines 

of the OMB, the Commission reviewed key components 

of its management and internal control system

The objectives of our internal controls are to provide 

reasonable assurance that:

• Obligations and costs are in compliance with applicable laws;

• Our assets are safeguarded against waste, loss, unauthorized use or misappropriation;

• The revenues and expenditures applicable to Commission operations are properly recorded and accounted for to permit the preparation of accounts 

and reliable financial and statistical reports and to 

maintain accountability over the assets; and 

• All programs are efficiently and effectively carried out in 

accordance with applicable laws and management policy

The efficiency of the Commission’s operations is 

continually evaluated using information obtained from reviews conducted by the Government Accountability Office 

(GAO) and the Office of Inspector General, specifically 

requested studies, or observations of daily operations

These reviews ensure that the Commission’s systems 

and controls comply with the standards established by 

FMFIA. Moreover, managers throughout the Commission

are responsible for ensuring that effective controls are 

implemented in their areas of responsibility. Individual

assurance statements from division and office heads 

serve as a primary basis for the Chairman’s assurance that 

management controls are adequate. The assurance statements are based upon each office’s evaluation of progress

made in correcting any previously reported problems, as 

well as new problems identified by the Office of Inspector 

CONTROL ENVIRONMENT

RISK ASSESSMENT

I N F O R M AT I O N & C O M M U N I C AT I O N

I N F O R M AT I O N & C O M M U N I C AT I O N

CONTROL ACTIVITIES

MONITORING

Internal Control Process
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

General, the GAO, and other management reports, and 

the management environment within each office

Commission organizations that have material weaknesses are required to submit plans for correcting those 

weaknesses. The plans, combined with the individual assurance statements, provide the framework for continually

monitoring and improving the Commission’s management and internal controls

The items presented below are illustrative of the 

review work we performed during FY 2005:

• Implemented key areas of the President’s Management Agenda initiatives for strategic management of 

human capital;

• Assessed gaps in compliance with the pay and benefits provisions called for in Section 10702 of Public 

Law 107-171, Farm Security and Rural Investment Act 

of 2002;

• Improved financial performance, expanding electronic 

government, and integrating budget and performance;

• Complied with the Federal Information Security Reform Act; and

• Corrected material weaknesses and reportable conditions identified in the FY 2004 independent auditors’ 

report of the agency’s financial statements and related 

internal controls

FMFIA Section 2, Management Control

The Commission has not declared material weaknesses 

under FMFIA for FY 2005. However, substantial corrective

action has been taken for the three material weaknesses 

reported in the FY 2004 Financial Statement Audit, and 

they are no longer considered material:

• Improvements needed in recording accruals and preparing financial statements; 

• Improvements needed in financial accounting process 

over journal vouchers; and

• Financial management systems need improvement

FMFIA Section 4, Financial Management

Systems

Substantial corrective action has been taken to address 

the material nonconformance reported in the FY 2004 

Annual Assurance Statement on the agency’s information 

asset management program. Therefore, this program is no

longer considered to be in material nonconformance. This

matter was originally reported in the FY 2002 FMFIA Report, and updated in the FY 2003 and 2004 Reports. The

Commission did not declare any new material systems 

nonconformance under FMFIA during FY 2005
P E R F O R M A N C E S E C T I O N

“

“

[The CFTC Enforcement Program] is well designed to meet 

objectives and to maximize the use of its resources.

Through cooperative enforcement with other government and private 

organizations, the program enhances the impact of its efforts.

—Office of Management and Budg
P E R F O R M A N C E D E TA I L S P E R F O R M A N C E D E TA I L S

Mission Statement and Agency Goals

GOAL ONE: Ensure the economic vitality of the commodity futures and option markets.

Outcomes

1. Markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity.

2. Markets that are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely 

affect their economic vitality. 

GOAL TWO: Protect market users and the public.

Outcomes

1. Violations of Federal commodities laws are detected and prevented.

2. Commodities professionals meet high standards.

3. Customer complaints against persons or firms falling within the jurisdiction of the Commodity Exchange Act are handled effectively 

and expeditiously.

GOAL THREE: Ensure market integrity in order to foster open, competitive, and financially sound markets.

Outcomes

1. Clearing organizations and firms holding customer funds have sound financial practices.

2. Commodity futures and option markets are effectively self-regulated.

3. Markets are free of trade practice abuses. 

4. Regulatory environment is responsive to evolving market conditions. 

THE U.S. COMMODITY FUTURES TRADING COMMISSION’S 

MISSION STATEMENT, STRATEGIC GOALS AND OUTCOME OBJECTIVES

MISSION STATEMENT

The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale 

of commodity futures and options, and to foster open, competitive, and financially sound commodity futures and option markets.

P E R F O R M A N C E S E C T I O N
Strategic Planning Framework 

The mission of the CFTC is accomplished through three 

strategic goals, each focusing on a vital area of regulatory responsibility

Accomplishing the three long-term strategic goals is 

evidenced by the progress of nine key outcome objectives

In most cases, due to the broad economic functions that 

the Commission oversees, it is not a simple task to identify specific detailed objectives that will be accomplished 

each year; however, it is possible to identify conditions 

that, if present, are indicators that the Commission’s 

activities are contributing successfully to the health of the 

industry it regulates

Commission programs strive to achieve the three 

performance goals supporting nine outcome objectives 

through various means and strategies described in the 

Performance Detail section. Annually, the performance

metrics are analyzed to determine the measure of success the program’s activities have in accomplishing the 

Commission’s overall strategic mission

To ensure this level of success, the Commission is 

committed to a continual in-depth assessment of the 

agency and its strategic planning structure. In early November 2005, the Commission conducted strategic planning sessions to reassess the agency’s strategic planning

structure and probe basic fundamental questions, such as: 

Where are we going? How will we get there? How has our 

environment changed to adapt to external changes? 

In addition, the Commission will continue to scrutinize the current performance metrics to ensure that the 

metrics adequately challenge the programs to reach the 

desired results, ensure accountability, and provide information that can be used to make financial decisions and 

develop future budgets

How the Commission Reports Performance 

Results

Performance results are discussed throughout this report

Commission-wide strategic performance measures are discussed at a summary level in the executive summary. They

are further amplified in the discussion of each strategic 

goal in the Performance Detail section

Although OMB Circular A-11, Preparation and Submission of Strategic Plans, Annual Performance Plans, and Annual 

Program Performance Reports, suggests reporting more 

than three prior fiscal years of performance metrics, new 

measurement data was developed in 2004 rendering 2002 

performance data obsolete and is, therefore, not included 

in this report. In 2004, the Commission modified the

2004 strategic measures and targets to better align our 

measures to our objectives and to adopt replacement measures where data is not available for prior measures. In the

Performance Detail section, the 2005 replacement targets, 

modified in 2004, are identified as “N/A,” not available

Each strategic goal, in the Performance Detail section, 

reports the percentage of performance measures met. The

Introduction to the Performance Section
performance statistics in this document represent the 

best assessment of Commission performance obtainable 

through the use of existing performance measures. Performance data that is still pending is identified as “TBD,”

to be determined. Once the performance metrics are finalized, the “TBD” data will be replaced with the final metrics

in the FY 2006 Performance and Accountability Report

The Performance Details section also sets the national 

context for each of our goals and describes the accomplishments of our programs over the past year. This discussion is followed by the results on the strategic measure

The Commission believes, however, that significant revisions to these measures are necessary to more meaningfully assess its performance
The President’s Office of Management and Budget has systematically assessed the quality of government programs 

over the past three years. Through the Program Assessment

Rating Tool (PART), the OMB works with Federal agencies to judge the effectiveness of programs with regard to 

their stated purpose, strategic planning, internal management, and results and accountability. Although primarily a

diagnostic tool for programs, PART reviews provide critical 

information that can be used to establish funding priorities for the subsequent budget cycle

OMB did not undertake a PART review of any CFTC 

program in FY 2005, and the findings of OMB’s PART 

review of the Enforcement program in FY 2004 were 

released in December 2004, after the FY 2004 Performance 

and Results Report was published; therefore, we are including these results here for the first time: 

PROGRAM ASSESSED: Enforcement

RATINGS: Results not Demonstrated

 SCORING

 Purpose 100

 Planning 71

 Management 100

 Results/Accountability 67

By way of comparison, the Commission understands 

that the category scoring for the Division of Enforcement 

was the highest of the three Enforcement programs that 

underwent the 2004 PART

Assessment Findings:

The OMB found the CFTC Enforcement program is:

“Well designed to meet objectives and to maximize the use 

of its resources. Through cooperative enforcement with other 

government and private organizations, the program enhances 

the impact of its efforts.

Demonstrates through its performance measures that it 

brings substantive cases in a timely manner. CFTC successfully 

resolved 99 percent of the cases it closed in the past year.

Lacks performance measures that illustrate whether the 

program meets its overall objective. Like other enforcement 

programs, it faces challenges in establishing overall performance measures to indicate the percentage of violative activity 

deterred, since no way has been devised to measure the total 

amount of fraud that exits. Thus, while current measures show 

that markets have been growing, which could demonstrate that 

they are ‘open, competitive, and financially sound,’ it cannot be 

determined how free they are from ‘fraud, manipulation, and 

abusive practice’.”

In response to these findings, OMB has requested that 

the Commission:

“Work with other similar programs in the government to 

develop measures that better reflect program effectiveness. The 

program will consider developing a novel way of measuring 

results, for instance, surveying industry experts.

Develop a measure that quantifies increased efficiencies.

Develop measures and targets for the collections of fines.”

The Commission is preparing its response to the OMB 

recommendations for submission in December 2005

Program Assessment Rating Tool 

3
Ensure the economic vitality of the 

commodity futures and option markets

Public Benefit:

Properly functioning futures markets collect information from around the world, digest it, and respond with 

judgments about the likely price of commodities at some 

future time. For example, such judgments could, in turn,

trigger decisions to sell a commodity at a certain price; 

raise capital through an equity rather than a debt offering; increase inventories of various commodities (i.e.,

copper, soybeans, etc.); use corn syrup rather than sugar

or sweetener; or to hold receivables in Deutsche marks 

rather than British pounds. Thus, futures markets help

us plan and make decisions, so that market users avoid 

uncontrolled risk

Resource Investment:

In FY 2005, the Commission requested $29.2 million and

169 full time equivalents (FTEs) and was appropriated 

$31.5 million and 166 FTEs for Goal On

 IN MILLIONS

$0

5

10

15

20

25

30

35

FY 2005 

BUDGET/PERFORMANCE PLAN

FY 2005

APPROPRIATION

$29.2

(169 FTEs)

$31.5

(166 FTEs)

FY 2005 GOAL ONE RESOURCES

Plan vs. Appropriation

P E R F O R M A N C E D E TA I L S

Goal One 
1

The performance metrics included in this document represent the best current estimate of 

Commission performance. Additional work is needed to devise better measures and valid current 

performance measures in order to effectively illustrate program success in meeting overall objectives.

OUTCOME OBJECTIVE 1.2

Markets that are effectively and efficiently monitored to ensure early warning of potential problems or issues that could affect their 

economic vitality.

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage of DCO applications demonstrating compliance 

with core principles

100% 100% 100%

Ratio of contracts surveilled per economist 8 10 11

Percentage of contract expirations without manipulation 99.9% 99.9% 99.9%

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage growth in market volume 20% 24% 26%

Percentage of novel or innovative proposals or requests for CFTC 

action addressed within six months to accommodate new approaches 

to, or the expansion in, derivatives trading, enhance the price discovery 

process or, increase available risk management tools

100% 100% 100%

Percentage increase in number of products traded 25% 12% 43%

Percentage of new exchange or clearinghouse organization 

applications completed within expedited review period

100% 100% 100%

Percentage of new contract certification reviews completed 

within three months to identify and correct deficiencies in 

contract terms that make contracts susceptible to manipulation

21% 53% 54%

Percentage of rule change certification reviews completed within 

three months to identify and correct deficiencies in exchange rules 

that make contracts susceptible to manipulation or trading abuses 

or result in violations of the law

70% 70% 84%

GOAL ONE: HISTORY OF PERFORMANCE RESULTS1

 OUTCOME OBJECTIVE 1.1

 Futures and option markets that accurately reflect the forces of supply and demand for the underlying commodity are free of 

 disruptive activity.

Goal One

Ensure the economic vitality of the commodity futures and option markets
P E R F O R M A N C E D E TA I L S

Return on Investment

The Commission’s 2005 Annual Performance Plan supports two outcome objectives for Goal One

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

6 0 0 0 6 0%

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

1.1.1 Percentage growth in market volume N/A 26%

1.1.2 Percentage of novel or innovative market proposals or requests for CFTC

action addressed within six months to accommodate new approaches to, 

or the expansion in,derivatives trading, enhance the price discovery process 

or, increase available risk management tools

N/A 100%

1.1.3 Percentage increase in number of products traded N/A 43%

1.1.4 Percentage of new exchange and clearinghouse organization 

applications completed within the expedited review period

N/A 100%

1.1.5 Percentage of new contract certification reviews completed within 

three months to identify and correct deficiencies in contract terms 

that make contracts susceptible to manipulation

N/A 54%

1.1.6 Percentage of rule change certification reviews completed within 

three months to identify and correct deficiencies in exchange rules 

that make contracts susceptible to manipulation or trading abuses 

or violations of law

N/A 84%

OBJECTIVE 1.1: NO PRICE MANIPULATION

 FY 2005 Appropriation: $25.3 Million

 FY 2005 Results: Performance results are positive and generally indicate the achievement of results. However, performance 

 plan targets were not developed at the time of the FY 2005 Budget submission in February 2004, as a result of the contemporaneous 

 adoption of the 5-year strategic plan in February 2004. 
Program Contributions to Strategic 

Goal One:

In 2005, the explosive growth in the futures and option 

markets continued; total volume in FY 2005 was up 26 

percent from FY 2004 with over 2 billion contracts traded

(See measure 1.1.

Market Surveillance. Monitoring market activity represents one of the ways the Commission seeks to protect 

the economic functions of the markets. Market surveillance is conducted to detect attempted manipulation and

other abusive practices that could undermine the capacity 

of these markets to perform their economic function. The

Commission takes preventive measures to ensure that 

market prices accurately reflect fundamental supply and 

demand conditions, including the routine daily monitoring of large trader positions, futures and cash prices, price 

relationships, and supply and demand factors in order to 

detect threats of price manipulation

In FY 2005, the Commission conducted daily surveillance of 669 active futures and option contracts. Particularly close monitoring was conducted on the energy

futures markets, which experienced periods of high prices 

and high price volatility due to, among other things, low 

stocks, tight production capacity, geopolitical tension in 

the Middle East, strong world economic demand and 

natural disasters. In addition, very close monitoring was

conducted on the cattle futures markets as prices were 

volatile due to the countervailing pressures of strong 

demand and the effects of discovery of Bovine Spongiform 

Encephalopathy (BSE) or “Mad Cow” disease in a single 

cow in the state of Washington. The surveillance included

collecting and analyzing approximately 44 million line 

items of data regarding large trader activity and approximately 16,000 reports identifying the large traders. In the

course of the year, economists prepared approximately 

1,500 weekly surveillance reports and compiled 23 special 

market reports. (See measure 1.2

Commission staff reviewed six applications of entities 

seeking to become a designated contract market. Staff also

reviewed three filings by entities that notified the Commission of their intention to operate as exempt markets 

under the CEA. (See measure 1.1

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

3 0 2 0 1 67%

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

1.2.1 Percentage of DCO applications demonstrating compliance with 

core principles

100% 100%

1.2.2 Ratio of contracts surveilled per economist N/A 11

1.2.3 Percentage of contract expirations without manipulation 99.9% 99.9%

OBJECTIVE 1.2: EFFECTIVE AND EFFICIENT MARKET SURVEILLANCE

 FY 2005 APPROPRIATION: $6.2 Million

 FY 2005 RESULTS: 67 Percent of Performance Results are on target. Performance plan target for Outcome Measure 1.2.2 

 was not developed at the time of the FY 2005 Budget submission in February 2004, as a result of the contemporaneous adoption 

 of the 5-year strategic plan in February 2004. 
P E R F O R M A N C E D E TA I L S

Commission staff reviewed 10 rule amendment approval requests for existing futures and option contracts 

in FY 2005. Staff reviewed the terms and conditions of

contracts submitted for approval to ensure that contract 

terms and conditions were in compliance with Commission regulations and policies and did not raise any public 

interest issues. Under the Commission’s certification

procedures for listing new products, 286 new contracts 

were filed, including 91 SFPs, and under its certification 

procedures, 125 product rule changes were filed. Staff

reviewed the terms and conditions of contracts submitted 

under certification procedures to ensure that statutory and 

regulatory anti-manipulation requirements were met and 

to provide essential background information in order to 

conduct market surveillance. (See measures 1.1.1, 1.

1.1.3, 1.1.5, 

The Commission’s review of exchange rules is a key 

aspect of the statutory framework for self-regulation under 

Commission oversight. The staff reviewed exchange rule

submissions with a view toward maintaining the fairness and financial integrity of the markets, protecting 

customers, accommodating and fostering innovation, and 

increasing efficiency in self-regulation consistent with the 

Commission’s statutory mandates. During FY 2005, staff

reviewed 262 exchange rule submissions containing 1,237 

separate new rule amendments. Commission staff are

also responsible for providing exemptive, interpretive, or 

other relief to various markets and market participants to 

facilitate the continued development of an effective, flexible regulatory environment responsive to evolving market 

conditions. (See measure 1.1

Derivatives Clearing Organization Oversight. The

Commission monitors the potential for, and instances 

of, market volatility, market disruptions or emergencies 

which have the potential to impact: 1) the proper capitalization of firms; 2) the proper segregation of customer 

funds; 3) the ability of financial intermediaries to make 

payments to a DCO in a timely manner; and 4) issues 

with respect to systemic risk. Commission staff monitor

cases of volatile markets in order to advise the Commission of any potential financial impairment of a registrant 

or potential systemic risk. It is not possible to estimate

in advance the number of such events that will occur 

annually because market volatility cannot be predicted

Nevertheless, such events are expected to occur. Commission staff conducted 72 market move reviews in FY 200

Such reviews met the objectives of assuring that registrants 

and financial intermediaries are not impaired by market 

volatility or disruptions to meet financial obligations; and 

detecting any failure by a DCO to meet its obligations or 

other impairment of a registrant. (See measure 1.2

Economic and Statistical Analyses. Commission 

staff performed economic and empirical analyses to evaluate the performance of futures markets and to evaluate the 

impact of changes in trading rules and in contract specifications on the performance of the futures markets. For

example, staff empirically examined the effects of participation by managed money traders in certain U.S. future

markets. Economists in the Office of the Chief Economist

also provided economic and statistical consulting services 

to Commission staff and offered economic and financial 

research seminars and short courses in futures, options, 

and financial economics

Staff also provided economic and statistical analysis 

on a number of cases involving foreign currencies and 

energy products, conducted an examination of the appropriate role for Federal oversight of event-type markets, 

and of several recently developed derivatives products. In

addition, Commission staff presented research findings 

relating to price discovery, hedging, and market microstructure and development issues at industry or academic 

and industry conferences, as well as through publications 

available to the public

Manipulation, Attempted Manipulation and False 

Reporting. Manipulation investigations and litigations 

tend to be among the most complex and resource-intensive 

matters handled by Enforcement staff. During FY 2005, the

Commission’s Enforcement efforts in this program area 

are reflected in its handling of alleged misconduct in the 

agriculture and energy markets. (See Appendices

Office of the General Counsel. In FY 2005, the 

Commission continued to review for legal sufficiency and 

for conformance with the CEA and Commission policy 

and precedent contract market designation applications 

and applications for registration as DCOs. In addition,

Commission staff continued to advise the Commission 
concerning implementation of the rules and regulations 

issued pursuant to the CFMA. Staff have been instrumental in advising the Commission as it comprehensively

modernizes its rules, and particularly the rules governing 

market intermediaries such as FCMs, CPOs, CTAs and 

other registrants in light of the study completed by the 

Commission and submitted to Congress under Section 

125 of the CFMA

Staff also reviewed in excess of 100 proposed enforcement actions, including those alleging manipulation and 

other abusive trading practices, during FY 2005, to assure 

their legal sufficiency and conformance with Commission 

policy and precedent

Integrated Surveillance System. In FY 2005, the 

Commission’s primary mission critical application to 

support futures and option data market surveillance, the 

Integrated Surveillance System (ISS), was significantly 

enhanced to address changes and growth in the futures 

industry. This year, those changes included the automation of the collection and review of data from exempt

commercial markets. In addition, a number of noteworthy enhancements were established in the ISS that will

improve the efficiency of market monitoring and analysis

These modifications include integrated document storage 

capabilities in support of large trader reporting, consolidated market queries that allow related markets to be 

grouped together for better market analysis, full search 

capabilities throughout the application, and comprehensive graphing capability
Protect market users and the public

Public Benefit:

Market users must be protected from possible wrongdoing on the part of firms and commodity professionals 

with whom they deal to access the marketplace, and they 

must be confident that the marketplace is free of fraud, 

manipulation, and abusive practices. The Commission

plays a crucial role in deterring behavior that could affect market users’ confidence by investigating and taking 

action against unscrupulous commodity professionals 

who engage in a wide variety of fraudulent sales practices 

against the public

Resource Investment:

In FY 2005, the Commission requested $39.7 million

and 202 FTEs and was appropriated $37.4 million and

195 FTEs for Goal Two

 IN MILLIONS

$0

5

10

15

20

25

30

35

40

45

FY 2005 

BUDGET/PERFORMANCE PLAN

FY 2005

APPROPRIATION

$39.7 

(202 FTEs) $37.4

(195 FTEs)

FY 2005 GOAL TWO RESOURCES

Plan vs. Appropriation

P E R F O R M A N C E D E TA I L S

Goal Two
2

 The performance metrics included in this document represent the best current estimate 

of Commission performance. Additional work is needed to devise better measures and 

valid current performance measures in order to effectively illustrate program success in 

meeting overall objectives.

OUTCOME OBJECTIVE 2.2

Commodity professionals meet high standards.

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage of SROs that comply with core principles 100% 100% TBD

Percentage of DCOs that comply with core principles 100% 100% TBD

Percentage of professionals compliant with standards regarding 

testing, licensing, and ethics training 

100% 100% 100%

Percentage of SROs that comply with requirement to enforce their rules 100% 100% TBD

Percentage of total requests receiving CFTC responses for guidance 

and advice

90% 90% 90%

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Number of enforcement investigations opened during the fiscal year

 172 215 131

Number of enforcement cases filed during the fiscal year 65 83 69

Percentage of enforcement cases closed during the fiscal year in 

which the Commission obtained sanctions 

99% 99% 100%

Cases filed by other criminal and civil law enforcement authorities 

during the fiscal year that included cooperative assistance from 

the Commission

20 23 20

GOAL TWO: HISTORY OF PERFORMANCE RESULTS2

 OUTCOME OBJECTIVE 2.1

 Violations of Federal commodities laws are detected and prevented.

Goal Two

Protect market users and the public

OUTCOME OBJECTIVE 2.3

Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage of filed complaints resolved within one year of the filing date 50% 41% 50%

Percentage of appeals resolved within six months 35% 35% 46%
P E R F O R M A N C E D E TA I L S

Return on Investment

The Commission’s 2005 Annual Performance Plan supports three outcome objectives for Goal Two

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

4 1 1 2 0 50%

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

2.1.1 Number of enforcement investigations opened during the fiscal year 135 131

2.1.2 Number of enforcement cases filed during the fiscal year 65 69

2.1.3 Percentage of enforcement cases closed in which the Commission 

obtained sanctions

100% 100%

2.1.4 Cases filed by other criminal and civil law enforcement authorities during 

the fiscal year that included cooperative assistance from the Commission

21 20

OBJECTIVE 2.1: VIOLATORS DETECTED & SANCTIONED

 FY 2005 Appropriation: $28.0 Million

 FY 2005 Results: Results achieved or slightly below target. It is impractical and infeasible to predict with a degree of precision the 

 exact number of investigations opened, cases filed, cases closed with sanctions obtained, and cases filed with cooperative assistance. 

 Outcome measure 2.1.3 is arguably the strongest measure and the planned results were achieved 
Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

5 0 2 0 3 40%

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

2.2.1 Percentage of SROs that comply with core principles 100% TBD

2.2.2 Percentage of DCOs that comply with core principles 100% TBD

2.2.3 Percentage of professionals compliant with standards regarding testing, 

licensing and ethics training

100% 100%

2.2.4 Percentage of SROs that comply with requirement to enforce their rules 100% TBD

2.2.5 Percentage of total requests receiving CFTC responses for guidance 

and advice

90% 90% 

OBJECTIVE 2.2: COMMODITY PROFESSIONALS MEET HIGH STANDARDS

 FY 2005 Appropriation: $5.8 Million

 FY 2005 Results: Results achieved or “to be determined.” Oversight is still on-going and program staff have not completed 

 its review and assessment on measures 2.2.1, 2.2.2, and 2.2.4 to provide sufficient data to report on the percentages that comply 

 with core principles. 

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

2 1 1 0 0 100%

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

2.3.1 Percentage of filed complaints resolved within one year of the filing date 50% 50%

2.3.2 Percentage of appeals resolved within six months 35% 46%

OBJECTIVE 2.3: CUSTOMER COMPLAINTS RESOLVED

 FY 2005 Appropriation: $3.6 Million

 FY 2005 Results: Slightly above and on target.

4
Program Contributions to Strategic 

Goal Two:

Oversight of Sales Practices and Registered Futures 

Associations. A core part of the Commission’s mission is to 

operate a program that protects market users and the public 

from fraud and abusive practices related to the offer and 

sale of commodity futures and options. Commission staff

conduct on-going oversight related to screening market professionals for fitness and assuring that DCOs have appropriate risk management programs. The Commission also

develops disclosure standards, particularly for managed futures and option products, to assure that market users and 

potential market users are appropriately and consistently 

informed of the risks of futures and option trading, and are 

provided with information about trading managers

During FY 2005, the Commission initiated a review 

of the NFA’s program for the oversight of CPOs and CTAs 

for compliance with Commission and NFA rules and 

regulations. This review has focused on the following

NFA programs: registration of CPOs and CTAs, review 

of CPO and CTA Disclosure Documents, review of CPO 

annual financial statements, sales practices, and disciplinary process. Staff is currently finalizing its report, which is

expected to be presented to the Commission in early FY 

2006. (See measures 2.2.1 and 2

Oversight of Intermediary Fitness. In FY 2005, 

there were 71,264 industry registrants. These registrants

included 215 futures commission merchants (15 of which 

were securities broker-dealers registered with the SEC 

that “notice-registered” with the CFTC because their only 

futures-related activity involved SFPs), 1,701 introducing 

brokers (IBs) (42 of whom were notice-registered), 1,791 

CPOs, and 2,661 CTAs. These firms employ 54,823 sales

personnel, known as associated persons. In addition, there

are 8,524 individuals registered as floor brokers and 1,549 

individuals registered as floor traders executing trades on 

U.S. exchang

The Commission is responsible for formal oversight 

of the NFA registration program. This oversight involves

inspection of records and interviews with NFA staff as 

well as numerous informal contacts between NFA and 

the Commission staff on a weekly basis. These oversight

activities are designed to protect market participants and 

the public interest by assuring that persons who deal 

directly with customers and those who handle customer 

orders and funds meet the standards for fitness, integrity, 

and training established under the CEA. Persons who

cannot meet these standards may be subject to statutory 

disqualification from registration and may have their 

registration denied, conditioned, or revoked

The Commission seeks to protect market users and 

the public by requiring futures industry professionals to 

meet high standards through registration and passing of a 

proficiency exam by salespersons. When Commission staff

uncover persons who are not registered but should be, a 

letter is sent to the person, and/or the matter is referred 

for enforcement action. (See measure 2.2

The Commission chaired the Registration Working 

Group (RWG), which is composed of Commission and 

NFA representatives. The RWG was created as a means for

the Commission and NFA staff to share ideas and concerns about issues that are not tied to any specific pending 

registration case. Commission staff participated in four

meetings of the RWG during FY 2005, in which the group 

discussed, among other things: 1) registration holds; 2) 

conditional registrations; 3) augmentation of the registration database to include a name for regulatory contacts; 

and 4) fingerprint processing

Anti-Money Laundering. Commission staff continue 

to work with other Federal financial regulators on various 

aspects of a program to combat money laundering and 

terrorist financing. Specifically, staff continues to participate

in developing rules implementing the USA PATRIOT Act 

and in developing and issuing guidance concerning the 

application of these rules. For example, staff worked with

the SEC and other agencies in drafting a no-action position 

concerning the customers of certain CTAs and investment 

advisors that was issued on March 14, 2005. Commission

staff also continues to work with the U.S. Treasury to shar

information about possible terrorist financiers and money 

launderers. As part of this process, staff maintains and

updates a list of FCMs and contact persons, which the U.

Treasury then uses when issuing a biweekly list of possible 

money launderers and terrorist financiers

P E R F O R M A N C E D E TA I L S
Commodity Pools (including “Hedge Funds”), 

Commodity Pool Operators, and Commodity Trading 

Advisors. Investors continue to fall prey to unscrupulous

CPOs and CTAs, including CPOs and CTAs operating 

self-described hedge funds. In many of these cases, the

defendants have pre-existing business, social, religious, 

or ethnic ties to the individual investors. These personal

relationships enable the defendants to gain the investors’ 

trust and then lull them into a false sense of confidence

The Commission addresses this violative conduct through 

a combination of enforcement actions and investor 

education. Some of the scams are operated as “Ponzi

schemes” in which early investors are paid purported 

“profits” with newer investor funds. The schemes generally

involve fraud in soliciting the general public to invest in 

the pools operated by the CPO or CTA, fraudulent statements concerning the results being achieved by the pool 

for its investors, and/or outright misappropriation of pool 

funds by the CPO. During FY 2005, the Commission filed

nine enforcement actions in this program area, and also 

achieved significant litigation results in six actions filed in 

this practice area during previous fiscal years. Examples of

these successes are provided in the Appendices

Commodity Trading Advisors, Managed Accounts, and 

Trading Systems. During FY 2005, the Commission filed 

eight enforcement actions in this program area and achieved 

significant litigation results in four actions filed in this practice area during previous fiscal years. (See Appendices

Futures Commission Merchants, Introducing 

Brokers, and Their Associated Persons. The Commission 

diligently redresses misappropriation and other violative 

conduct by futures commission merchants, introducing 

brokers, and their associated persons. During FY 2005, the

Commission filed 11 enforcement actions in this practice 

area, and also achieved significant litigation results in 

one action filed in this practice area during previous fiscal 

years. (See Appendices

Foreign Currency Cases. The Commission continued 

to battle fraud perpetrated on the retail public by firms 

offering trading in off-exchange forex. While much foreign

currency trading is legitimate, numerous companies have 

fraudulently solicited and traded customer foreign currency futures or option trading accounts. Under the CFMA, it

is unlawful to offer off-exchange foreign currency futures 

or option contracts to retail customers unless the counterparty to the contract is a regulated financial entity enumerated in the CFMA, such as an FCM or financial institution

In addition, even if the counterparty is appropriate, the 

Commission has jurisdiction to investigate and prosecute 

retail foreign currency futures or options fraud. Forex

trading scams often attract customers through advertisements in local newspapers, radio promotions, or online

These advertisements often tout purportedly high-return, 

low-risk investment opportunities in foreign currencies

The Commission has brought enforcement actions against 

both registered firms (for fraud and for other CEA violations, such as failure to maintain net capital requirements) 

and unregistered “bucket shops.” (See Appendices

During FY 2005, the Commission filed 17 enforcement actions against firms and individuals selling illegal 

foreign currency futures and option contracts, bringing the 

total of such actions to 79 since enactment of the CFMA 

in December 2001. During FY 2005, the Commission also

achieved significant litigation results in eight actions filed 

in this practice area during previous fiscal years. Since the

enactment of the CFMA, the Commission has obtained in 

its 79 forex enforcement actions approximate monetary 

sanctions of $170 million in civil monetary penalties and 

$115 million in restitution. (See Appendices

Precious Metals and Other Illegal Off-Exchange 

Cases. During FY 2005, the Commission’s Enforcement 

program prosecuted two actions that alleged non-forex, 

illegal off-exchange trading. (See Appendices

Violation of Commission Orders. The Commission 

filed one enforcement action in this program area during 

FY 2005. (See Appendices

Quick-Strike Cases. The Commission is committed 

to responding quickly to enforcement investigations that 

uncover on-going fraud. Quick-strike cases are civil injunctive actions that generally are filed in Federal district courts

within days or weeks of the discovery of the illegal activity, 

enabling the Commission to stop fraud at an early stage 

and to attempt to preserve customer funds. During FY

2005, the Commission prosecuted 13 quick-strike cases, 

which were all filed within four months of opening the 

related investigation
Domestic Cooperative Enforcement. The Commission’s cooperative enforcement efforts are an important 

part of its ability to promote compliance with and deter 

violations of Federal commodities laws. Cooperative enforcement enables the Commission to maximize its ability

to detect, deter, and impose sanctions against wrongdoers 

in cases involving U.S. markets, registrants, and custome

The benefits of cooperative enforcement include: 1) The 

use of resources from other sources to support Commission enforcement actions; 2) coordination in filing actions 

with other authorities to further the impact of enforcement efforts; and 3) development of consistent and clear 

governmental responses and avoidance of duplication of 

efforts by multiple authorities

As in the past, staff have coordinated with numerous 

Federal, State, and self-regulatory authorities. Historically,

program staff have sought assistance from or provided 

assistance to various Federal agencies, such as the Department of Justice (DOJ), Federal Trade Commission (FTC), 

Federal Energy Regulatory Commission (FERC), Federal 

Bureau of Investigation (FBI), SEC, and the U.S. Posta

Inspection Service. Similarly, Commission staff have provided assistance to and/or received assistance from State

authorities, such as agencies responsible for the regulation 

of corporations, securities, and banking. The Commission

also provided Federal and local law enforcement authorities with testimony or other assistance in connection 

with criminal investigations. Enforcement program staff

worked with the DOJ and various U.S. Attorney’s office

throughout the nation, the FBI, the offices of numerous 

State attorneys general, local police authorities, and task 

forces focusing on areas such as corporate fraud and foreign currency fraud

In addition to direct cooperation with domestic law 

enforcement and regulatory authorities, the Enforcement 

program also represents the Commission in a variety of 

domestic and international efforts, including task forces 

and working groups designed to keep market participants 

abreast of new developments in financial crimes and to 

coordinate governmental responses to common issues

Several examples of the efforts of the Enforcement program in this area follow:

• Corporate Fraud Task Force. By Executive Order, 

signed by President Bush on July 9, 2002, the CFTC was 

named a member of the Corporate Fraud Task Force

This task force was established with the objective of 

strengthening the efforts of DOJ, Federal, State, and 

local agencies to investigate and prosecute significant 

financial crimes, recover the proceeds of such crimes, 

and ensure just and effective punishment of those who 

perpetrate financial crimes

• Anti-Money Laundering (AML). The Commission participates in domestic and international AML cooperative

enforcement efforts. On the domestic front, the Commission is a member of the Money Laundering Strategy

Working Group and the U.S. Treasury Department’

Bank Secrecy Act Advisory Group. Internationally, the

Commission has aided the U.S. delegation to th

Financial Action Task Force on issues including efforts 

to combat global terrorist financing

• Telemarketing and Internet Fraud Working Group. This 

Group consists of representatives from Federal, State, and 

international regulatory and criminal authorities

• Securities and Commodities Fraud Working Group.

The Securities and Commodities Fraud Working Group 

is a vehicle for public and private sector participants to 

discuss current trends in financial crime in the securities, futures, and option industries and to exchange 

ideas about enforcement techniques. The group, organized by the Fraud section of the Criminal Division of

the DOJ, meets on a quarterly basis, and its members 

include criminal and regulatory authorities from State 

and Federal agencies and representatives from various 

exchanges and other SROs

Proceedings. The Commission provides a forum for 

effectively and expeditiously handling customer complaints against persons or firms registered with the Commission at the time of the alleged wrongdoing or at the 

time the complaint is filed

During FY 2005, 46 percent of the reparations complaints were disposed of within one year from the date 

the complaint was filed. The remaining complaints were

not resolved within one year as a result of issues beyond 

the Commission’s control. For example, parties requested

P E R F O R M A N C E D E TA I L S
additional time for one or more of the following reasons: 

1) to submit supplementation to their cases; 2) to prepare 

pleadings; 3) to complete extensive discovery documents; 

or 4) to deal with personal or professional responsibilities

(See measure 2.3.

The Commission’s administrative law judges (ALJs) 

are responsible for hearing and rendering decisions in 

administrative enforcement cases brought by the Commission against alleged violators of the CEA or related 

regulations. The Commission decided 23 administrative

enforcement cases in FY 2005

Opinions and Review. Through its Opinions program, the Commission drafts opinions and orders in 

matters appealed to the Commission. The Commission’s

jurisdiction in adjudicatory matters includes:

• Administrative cases prosecuted by the Enforcement 

program against alleged violators of the CEA or related 

regulations;

• Reparations cases brought by customers to recover monetary damages from industry registrants; and 

• Adjudicatory actions taken by industry SROs

Through mid-September 2005, the Commission issued 

37 opinions and other orders (including orders issued 

pursuant to delegated authority), 19 of which were final 

dispositions of cases pending on the Commission’s docket

Among other decisions, in an appeal from an exchange 

proceeding, the Commission affirmed the default judgment 

entered against a respondent who challenged a 10-year 

access denial imposed because he engaged in unlawful trading to cover a mistake in handling a customer order. The

Commission rejected the argument that the sanction was 

unfair because the co-respondent in the exchange proceeding, who settled, faced no access denial. The Commission

also found no error in the exchange’s decision to impose 

an access denial period twice as long as the period recommended by the exchange’s compliance officials, because the 

period imposed was permitted by exchange rules.Carusell

v. NYMEX, Docket No. 05-E-1 (June 21, 2005

In another administrative enforcement case, the Commission appealed from the ALJ’s refusal to impose a civil 

monetary penalty on the respondent. Upon review of the

record, the Commission determined that it was unable 

to reliably determine the respondent’s net worth and his 

consequent capacity to pay a penalty. The Commission

elected not to remand the case. Instead, the Commission

issued an opinion in which it announced that it would 

conduct direct fact finding itself. The outcome was that the

respondent paid a civil monetary penalty of $200,000.In

re Nikkhah (CFTC Mar. 25, 2005

The Commission refused to find that a closely-held 

FCM, its owner and his wife violated speculative position 

limits. The owner, his family and several close friends traded profitably during a corn bull market. The Commissio

held that similarities in their trading were insufficient to 

establish either that the owner controlled his wife’s trading or that an express or implied agreement existed among 

the owner and his daughters and friends, all of whom had 

substantial trading experience and independent financial 

resources.In re Bielfeldt, Docket No. 96-1 (CFTC Dec. 

2004) (affirming in part and reversing in part the initial 

decision, and dismissing the complaint)

Office of General Counsel. Through the litigation 

program, Commission staff represents the Commission 

in the U.S. District Courts and the Courts of Appeals an

assists the Solicitor General in representing the Commission before the U.S. Supreme Court. Commission sta

also monitors litigation of interest to accomplishing the 

Commission’s mission, including the Commission’s cooperation with other Federal financial regulators through the 

President’s Working Group on Financial Markets and the 

President’s Corporate Fraud Task Force

The Commission succeeded in obtaining dismissal 

of one significant case before the U.S. Supreme Cou

The result in that case, R.J. Fitzgerald & Co. v. CFTC, 125 S

Ct. 808 (Dec. 13, 2004) (Mem.), preserved the successf

ruling obtained by the Commission in the U.S. Court o

Appeals for the Eleventh Circuit in an important anti-sales 

fraud prosecution. The Eleventh Circuit held that a television commercial was fraudulent when its overall message

suggested that profits of 200 to 300 percent could be 

gained by investing in options by looking at known and 

expected weather patterns. The Court held that the advertising overemphasized profit potential and downplayed

the risk of loss. 310 F.3d 1321 (11th Cir. 20

Before U.S. Courts of Appeals, the Commission obtained favorable rulings upon a variety of issues. Foremos
P E R F O R M A N C E D E TA I L S

the Commission succeeded in demonstrating that it was 

substantially justified in defending the statutory registration scheme established under Section 4m of the CEA, 

Taucher v. Brown-Hruska, 396 F.3d 1168 (D.C. Cir. 200

and in defending the mechanism for evaluating registration applications provided by Congress through Section 

8(a) of the Act, Hirschberg v. CFTC, 414 F.3d 679 (7th Ci

2005). The Commission also succeeded in the appellate

courts in its defense of challenges brought against injunctions issued by district courts aimed at preventing sales 

solicitation fraud.CFTC v. Wall Street Underground, 128

Fed. Appx. 726 (10th Cir. 2005); CFTC v.Fremer, 128

Appx. 104 (11th Cir. 2005); CFTC v. Gibralter Monetar

Corp., No. 04-13828-I (11th Cir. May 9, 20

In support of its oversight of the activities of SROs, 

the Commission succeeded on appeal in defending its 

affirmance of an exchange’s handling of an altercation that 

arose at the exchange.Piccolo v. CFTC, 388 F.3d 387 (2n

Cir. 2005). In another matter, the Commission was not successful in persuading the Court of Appeals for the Sevent

Circuit of the correctness of the Commission’s interpretation of a core jurisdictional issue regarding the definition 

of a futures contract in CFTC v. Zelener, 373 F.3d 861 (7th

Cir.), reh’g denied, 387 F.3d 624 (2004). The result in th

case brought to the fore the need for legislative action to 

clarify the Commission’s ability to combat fraud in the sale 

of foreign currency exchange investments

In several cases before the U.S. District Courts, Commission staff defended the Commission’s interests in th

handling of records it collects while investigating possible 

violations of the CEA. One case, In re Application of William R. Tacon, Misc. No. 05MS00083 (D.D.C.), inv

the Commission’s defense of the statutory prescriptions 

application to the Commission’s receipt of information. In

another case, In re Subpoena Issued to CFTC, 370 F. Supp. 

201 (D.D.C. 2005), Commission staff continues to defe

the Commission’s interests where an issue of governmentwide interest has been posed, specifically, whether the 

appellate court should recognize a federal common law 

right to withhold from third parties records pertaining to 

settlement under a federal “settlement privilege.

Commission staff represents the Commission in 

personnel cases before the district courts and before administrative agencies, such as the Equal Employment Opportunity 

Commission and the Merit Systems Protection Board and 

represents the Commission in contract matters before the 

General Services Board of Contract Appeals

Commission staff also monitors bankruptcy cases involving futures industry professionals and, as appropriate, 

assists courts, trustees, and customers in implementing 

special bankruptcy code provisions that pertain to commodity firms. In FY 2005, Commission staff analyzed the

Commission’s interests in 22 bankruptcy cases and formally appeared before various bankruptcy courts throughout the country to protect both the Commission’s interest 

in recovering penalties owed due to market misconduct 

and the interest of public customers in having their funds 

recovered and returned in 12 such cases

Finally, through its amicus curiae program, Commission staff supported the Commission in assisting the 

courts in resolving difficult or novel questions arising 

under the CEA or Commission regulations with the intent 

of making significant contributions to the development 

of consistent and accurate legal precedent. In FY 2005, the

Commission participated in Board of Trade of the City of 

New York v. Klein & Co. Futures, Inc., No. 00Civ.5563GB

(S.D.N.Y.), a case involving the rights and duties of parties subject to the Act upon the incidence of a custome

financial default

Regulatory and Legislative Matters. In FY 2005, 

Commission staff continued to advise the Commission 

concerning the implementation of rules and regulations 

issued pursuant to the CFMA. Commission staff assisted

the Commission in new regulatory initiatives to further 

carry out CFMA mandates, including providing regulatory 

relief to market intermediaries, such as amendments to 

the CFTC’s Large Trader Reporting rules and revised FCM 

reporting requirements for risk-based capital

The Commission consulted with staff of the U.

Treasury and various Federal financial regulators to develop 

anti-money laundering regulations required under the USA 

PATRIOT Act, including in FY 2005, providing guidance to 

certain customers of CTAs and working with other agencies 

to complete information-sharing agreements

During FY 2005, the Commission presented testimony before Congressional committees on the Commission’s 

reauthorization
Ensure market integrity in order to 

foster open, competitive, and financially 

sound markets

Public Benefit:

The U.S. commodity futures markets must be protecte

from and free of abusive practices and influences to better 

operate and fulfill their vital role in the nation’s economy, 

as well as the global economy. The CFTC works diligently

to ensure that futures markets do function properly so 

that the marketplace may be used with confidence by the 

farmer who wishes to hedge his crop or feed, or the pension fund manager who desires to guarantee a set return 

on money entrusted for investment

Resource Investment:

In FY 2005, the Commission requested $26.4 million

and 134 FTEs and was appropriated $24.7 million and

130 FTEs for Goal Three

Goal Three

FY 2005 GOAL THREE RESOURCES

Plan vs. Appropriation

 IN MILLIONS

FY 2005 

BUDGET/PERFORMANCE PLAN

FY 2005

APPROPRIATION

$0

5

10

15

20

25

30 $26.4

(134 FTEs) $24.7

(130 FTEs)
P E R F O R M A N C E D E TA I L S

OUTCOME OBJECTIVE 3.2

Commodity futures and option markets are effectively self-regulated.

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage of intermediaries who meet risk-based capital 

requirements 

100% 100% 100%

Percentage of clearing organizations that comply with requirement 

to enforce their rules 

100% 100% TBD

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Lost Funds

 Percentage decrease in number of customers losing funds

 Amount of funds lost 

0%

$0

0%

$0

0%

$0

Number of rulemakings to ensure market integrity and financially 

sound markets 

1 1 3

Percentage of self-regulatory organizations that comply with requirment

to enforce rules

100% 100% TBD

HISTORY OF PERFORMANCE RESULTS3

OUTCOME OBJECTIVE 3.1

Clearing organizations and firms holding customer funds have sound financial practices.

Goal Three

Ensure market integrity in order to foster open, competitive, and financially sound markets

OUTCOME OBJECTIVE 3.3

Markets are free of trade practice abuses.

PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage of exchanges deemed to have adequate systems for 

detecting trade practice abuses 

100% 100% 100%

Percentage of exchanges that comply with requirement to enforce 

their rules

100% 100% 100%

3

The performance metrics included in this document represent the best current estimate of 

Commission performance. Additional work is needed to devise better measures and valid current 

performance measures in order to effectively illustrate program success in meeting overall objectives.
PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005

Percentage of CFMA Section 126(b) objectives addressed 

100% 100% 100%

Number of rulemakings, studies, interpretations, and guidance to 

ensure market integrity and exchanges’ compliance with regulatory 

requirements 

8 6 6

Percentage of requests for no-action or other relief completed within 

six months related to novel market or trading practices and issues to 

facilitate innovation 

100% 100% 100%

Percentage of requests receiving CFTC responses for guidance 

and advice

90% 90% 90%

OUTCOME OBJECTIVE 3.4

Regulatory environment is flexible and responsive to evolving market conditions.
P E R F O R M A N C E D E TA I L S

Return on Investment

The Commission’s 2005 Annual Performance Plan supports four outcome objectives for Goal Three

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

4 1 2 0 1 75%

OBJECTIVE 3.1: NO LOSS OF CUSTOMER FUNDS BY DERIVATIVE CLEARING ORGANIZATIONS

 FY 2005 Appropriation: $5.9 Million

 FY 2005 Results: Slightly above and on target. Measure 3.1.3 is “to be determined;” program staff have not completed its review and 

 assessment to provide sufficient data to report on the percentages of derivatives clearing organizations that comply with core principles. 

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

3.1.1 Lost Funds

 1) Percentage decrease in number of customers who lose funds

 2) Amount of funds lost

50%

$0

0%

$0

3.1.2 Number of rulemakings to ensure market integrity and financially sound markets 1 3

3.1.3 Percentage of self-regulatory organizations that comply with requirements to 

enforce rules

100% TBD

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

2 0 1 0 1 50%

OBJECTIVE 3.2: NO LOSS OF CUSTOMER FUNDS BY SELF-REGULATORY ORGANIZATIONS

 FY 2005 Appropriation: $10.6 Million

 FY 2005 Results: On target. Measure 3.2.2 is “to be determined;” program staff have not completed its review and 

 assessment to provide sufficient data to report on the percentages of derivatives clearing organizations that comply with core principles. 

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

3.2.1 Percentage of intermediaries who meet risk-based capital requirements 100% 100%

3.2.2 Percentage of clearing organizations that comply with requirement to 

enforce their rules

100% TBD
Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

2 0 2 0 0 100%

OBJECTIVE 3.3: MARKETS FREE OF TRADE PRACTICE ABUSES

FY 2005 Appropriation: $5.1 Million

FY 2005 Results: On target. 

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

3.3.1 Percentage of exchanges deemed to have adequate systems for detecting 

trade practice abuses

100% 100%

3.3.2 Percentage of exchanges that comply with requirement to enforce their rules 100% 100%

Number of 

Measures

Exceeded Goal Met Goal Did Not Meet Goal To Be Determined

or Not Available

Percent Meeting or 

Exceeding Goal

4 1 2 0 1 75%

OBJECTIVE 3.4: REGULATORY ENVIRONMENT IS FLEXIBLE 

AND RESPONSIVE TO EVOLVING MARKET CONDITIONS

FY 2005 Appropriation: $3.1 Million

FY 2005 Results: Slightly above and on target 

PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS

3.4.1 Percentage of CFMA Section 126(b) objectives addressed 100% 100%

3.4.2 Number of rulemakings, studies, interpretations, and guidance to ensure 

market integrity and exchanges’ compliance with regulatory requirements

2 6

3.4.3 Percentage of requests for no-action or other relief completed within 

six month related to novel market or trading practices and issues to 

facilitate innovation

 

N/A 100%

3.4.4 Percentage of total requests receiving CFTC responses for guidance 

and advice 

90% 90%

5
P E R F O R M A N C E D E TA I L S

Program Contributions to Strategic 

Goal Three:

Market Surveillance. The Commission staff completed 

two rule enforcement reviews of SRO compliance programs. Periodic review of SRO compliance programs is a

component of the program’s oversight activity to promote 

and enhance effective self-regulation and ensure that SROs 

enforce compliance with their rules

One of the rule enforcement reviews completed during FY 2005 was a review of OneChicago’s market surveillance, audit trail, trade practice surveillance, disciplinary, 

and dispute resolution programs. The other rule enforcement review completed during FY 2005 was a review of the

CBOT’s audit trail, trade practice surveillance, disciplinary, 

and dispute resolution programs. Market Compliance

staff found that both OneChicago and CBOT maintain 

adequate programs with respect to the areas reviewed

The Commission’s review of exchange rules is a key 

aspect of the statutory framework for self-regulation

Market and Product Review subprogram staff review 

exchange rule submissions with the goals of: 1) maintaining the fairness and financial integrity of the markets; 2) 

protecting customers; 3) accommodating and fostering 

innovation; and 4) increasing efficiency in self-regulation 

consistent with the Commission’s statutory mandates. To

these ends, staff reviewed 262 exchange rule submission 

packages and, within those packages, staff reviewed 1,237 

new rules and rule amendments. (See measures 3.2.

3.2.2, 3.3.1 and 

Commission staff also work to facilitate industry innovations and new trading methods and market 

structures, thereby meeting the Commission’s objective 

of promoting and enhancing effective self-regulation and 

competition. During FY 2005, staff was involved in a

number of significant matters including issues related to 

new exchanges and exempt markets, exchange mergers, 

novel trading procedures and contract designs, and new 

automated trading systems

Issuing Exemptive, Interpretive, and No-Action 

Relief. The Commission is responsible for providing 

exemptive, interpretive, or other relief to facilitate the continued development of an effective, flexible regulatory environment responsive to evolving market conditions. For

example, in FY 2005, the Commission issued an interpretative letter to the Australian Wheat Board (AWB) which 

found that AWB’s proposal to have its wholly-owned 

subsidiary, AWB (USA), Inc., conduct over-the-counter

trading, both as an offeror and an offeree of agricultural 

trade option contracts, fell within the exemptive provisions of regulation 32.13(g). The Commission continue

the policy initiated in FY 1999 of issuing no-action letters 

in response to requests by foreign boards of trade to permit placement of electronic terminals in the U.S. withou

requiring contract market designation for those boards of 

trade. In FY 2005, the Commission issued a no-action letter to the European Energy Exchange and issued amended

no-action letters to Eurex Deutschland and Eurex Zurich, 

Ltd., to permit, subject to Commission approval, the

clearing of Euro products traded on the two exchanges 

to be cleared by the Clearing Corporation (CCorp) as a 

special clearing member of Eurex Clearing AG. In FY 2005,

the Market and Product Review subprogram also issued 

an amended no-action relief letter to the Sydney Futures 

Exchange Limited (SFE) to permit non-clearing SFE 

members that carry U.S. customer accounts to place SF

terminals with those customers, conditioned on the nonclearing member giving up those trades to a guaranteeing 

FCM or rule 30.10 fir

In FY 2005, the Commission issued a no-action letter to U.S. Futures Exchange, LLC (Eurex U.S.) to aff

it relief from the Commission’s default contract reporting levels for futures and option contracts so that Eurex 

U.S.’s new 3-Year U.S. Treasury Notes (3-Year T-Not

contract would be subject to a reporting level of 750 

contracts, rather than the default level of 25 contracts

(Subsequently, the Commission adopted a rulemaking 

formally establishing a 750-contract reporting level for 

3-Year T-Notes.) The no-action relief eased the burden

of reporting on market participants while preserving the 

Commission’s ability to effectively surveil trading in 3-

Year T-Note contract. The Commission also continued the

policy initiated in FY 1999 of issuing no-action letters in 

response to requests by foreign boards of trade to permit 

placement of electronic terminals in the U.S. withou

requiring contract market designation for those boards 

of trade. In FY 2005, the Division’s Chief Counsel Office
issued three new no-action letters to the European Energy 

Exchange, the Winnipeg Commodity Exchange, Inc. and

Euronext Amsterdam N.V. In addition, amended no-action letters were issued to Eurex Deutschland (Eurex) an

the SFE. The letter to Eurex permitted, among other things,

participants of CCorp to carry positions in Eurex products pursuant to the Euro-link agreement between CCorp 

and Eurex Clearing. On the other hand, the letter to SFE

permitted the exchange to make its electronic trading and 

order matching system, known as SYCOM®, available to 

non-exchange participants in the U.

The Commission responded to a high number of 

formal and informal requests for guidance concerning 

the application of regulatory requirements to specific 

transactions, new products, and market circumstances

Staff issued 170 responses to written requests, including 

electronic responses, from members of the public and the 

regulated industry to provide guidance concerning the 

application of Commission regulations and to provide exemptions. Staff also responded to 1,773 telephone inquiries concerning the application of Commission requirements to commodity professionals. These responses aide

market participants and the public by providing guidance 

concerning the manner in which they may conduct their 

activities to comply with relevant requirements and by 

granting relief from requirements where application of the 

rules would not serve the public interest

Financial and Segregation Interpretation No. 10

(Interpretation No. 10), issued in 1984, effectively permitted customer margins to be deposited at a bank in a

safekeeping or custodial account (otherwise known as 

“safekeeping account” or “third-party custodial account”), 

in lieu of posting such funds directly with a FCM, without 

being deemed to violate the customer funds segregation 

provisions of Section 4d(a)(2) of the CEA and related 

Commission regulations. Through analysis and discussions with industry participants, it was determined that

third-party custodial accounts are no longer necessary or 

justified in light of developments since the issuance of 

Interpretation No. 10 and may present significant cost and

burdens for market participants. Accordingly, the Division

of Clearing and Intermediary Oversight (DCIO) withdrew 

Interpretation No. 10 in May 2005 and issued an amended

Interpretation No. 10-1 to prohibit FCMs from depositing, holding, or maintaining margin funds for customer

accounts in third-party custodial accounts, with limited 

exception for FCMs not eligible to hold the assets of their 

RIC customer (i.e., due to their affiliation with the RIC o

its adviser). The ban against the use of third-party accounts

is intended to prevent potential delay or interruption in 

securing required margin payments that, in times of significant market disruption, could magnify the impact of such 

market disruption and impair the liquidity of other FCMs 

and clearinghouses. (See measures 3.4.3 and 3

Fostering Sound Business Practices: Oversight of 

SROs, Market Intermediaries, and DCOs. A key aspect of 

assuring effective self-regulation is oversight by the Commission of SRO programs to assure compliance by their 

members with customer and market protection standards

Toward this end, the DCIO oversees, reviews, and reports 

to the Commission concerning statutorily required selfregulatory programs directed at maintaining the financial 

integrity of the markets and deterring improper sales 

practices and other wrongful conduct

The DCIO staff administer a financial surveillance 

and audit program that buttresses periodic audit, daily 

financial surveillance, and other self-policing programs 

administered by the exchanges and NFA to promote 

and enhance effective self-regulation of the commodity 

futures and option markets. The objective of this program

is to assure sound financial practices of DCOs and firms 

holding customer funds. The effort includes oversight of

financial compliance programs of SROs and direct quality 

control audits to assess the efficacy of their programs. The

oversight of SRO programs is necessary to ensure that SRO 

member firms are properly capitalized and maintain appropriate risk management capabilities, and that customer 

funds are held in segregation by appropriate custodians 

and are protected from misappropriation

This oversight function of the Clearing and Intermediary Oversight program has taken on increased importance 

with the Commission’s new regulatory framework under 

the CFMA. The CFMA defined a new category of registered entity, DCOs, and set forth certain core principles

governing such entities. Similar to the approach of other

Federal financial regulators and certain overseas financial 
P E R F O R M A N C E D E TA I L S

supervisors – indeed, in close consultation with several 

such peers – the DCIO program has begun enhancing 

its supervision of exchanges, clearinghouses, and other 

SROs with risk-based examination cycles and risk-focused 

reviews. Both the scheduling and scope of the DCIO’s

supervisory reviews are now based on careful analysis of 

the underlying risks to which an institution is exposed and 

the controls that it has in place to address those risks

The Major Review unit of the DCIO was created to 

plan, coordinate, schedule, monitor, and assess major 

risk-focused reviews. During FY 2005, program staff initiated a review of the Minneapolis Grain Exchange (MGE)

in its capacity as a DCO registered with the Commission 

pursuant to Section 5b of the CEA. The purpose of the

review was to determine whether MGE had demonstrated 

compliance with the core principles for DCOs set forth 

in Section 5b(c)(2) of the Act and with Part 39 of the 

Commission’s Rules. While program staff looked initially

at compliance with the core principles, generally its risk 

assessment and scope-setting phases effort led to a focus 

on MGE’s abilities to demonstrate fulfillment of its responsibilities as a risk-managing central counterparty. The

DCIO staff is currently preparing a report of its review for 

Commission consideration

The DCIO staff performed 11 audits (one DCO 

and 10 FCMs) in FY 2005 to test compliance with the 

Commission’s financial requirements for the safekeeping of customer funds. In addition, program staff processed about 2,700 financial reports filed by registrant

As a result of on-going program efforts such as these, no 

regulated customer funds were lost in FY 2005, thereby 

meeting the program’s objective of ensuring sound financial practices of clearing organizations and firms holding 

customer funds. (See measures 3.1.1, 3.1.2 and

Ensuring a Flexible and Responsive Regulatory Environment. In FY 2005, the DCIO supported the Commission’s on-going regulatory reform program, as well as actions required by or appropriate to the implementation of

the CFMA. In April 2005, the Commission issued an order

registering AE Clearinghouse as a DCO. AE Clearinghouse

provides an innovative method for clearing transactions 

executed on an exempt board of trade or over-the-counter. In October 2004, the Commission issued an order

pursuant to 4d of the CFMA permitting CCorp, a DCO, 

and its member FCMs to clear trades executed on Eurex, a 

foreign market, and commingle such positions and associated funds with other positions and funds required to be 

segregated. The Commission also issued an interpretation

clarifying the treatment in insolvency of funds held in 

segregation pursuant to such an order. In December 2004,

the Commission issued an amended order permitting 

HedgeStreet, a DCO, to clear additional products. In September 2005, the Commission issued an order pursuant to

4d permitting New York Mercantile Exchange (NYMEX), 

a DCO, and its member FCMs to clear trades executed on 

NYMEX Europe, an affiliated exchange located in London, 

and commingle such positions and associated funds with 

other positions and funds required to be segregated

The DCIO staff prepared six rulemaking actions 

during the fiscal year. Two of these were corrections of

previously published rule changes, one of which related 

to closing out of offsetting positions and the other to 

delegation of authority to the DCIO division director. One

order expanded the authority of NFA to exempt certain 

firms that act as FCMs and that are regulated by multiple 

foreign futures authorities or foreign SROs from registration under the CEA in accordance with guidelines set forth 

in the order by the Commission. A rule change simplified

the signature requirements for acknowledgment by noninstitutional customers of FCMs and IBs of required risk 

disclosure statements and consent for the firms to take the 

opposite side of customer trades. An interpretation by the

predecessor of the DCIO regarding segregation of customer funds was amended to prohibit the use of so-called 

third-party safekeeping accounts, except in cases where 

customers were required by the SEC to use such accounts

Finally, rules were issued that further expanded the range 

of permissible investments of customer funds by FCMs 

and DCOs subject to appropriate safeguards

In September 2005, the Commission published in the 

Federal Register a notice of proposed rulemaking to define 

the term “client” as it relates to a CTA. The proposed definition provides that a “subscriber” is one type of “client,”

thus clarifying apparent inconsistencies in the Act and in 

the Commission’s regulations concerning the advisees 

of CTAs. The proposal also clarifies the Commission’s
longstanding view that its antifraud authority extends to 

all CTAs, irrespective of whether they provide advice on 

a personalized or non-personalized basis. (See measures

3.4.1 and 3.

Remote Clearing. In a matter of first impression, 

(commonly referred to as “remote clearing,”) a foreign 

firm requested to become a full clearing member of a 

combined DCM and DCO to clear trades only for nonU.S. located customers without first registering under th

Act. The DCIO staff researched the legal question as to

whether a remote clearing foreign firm that would clear 

trades only for non-U.S. located customers would b

required to register with the Commission as an FCM, and 

addressed the material policy issues of remote clearing 

with respect to both customer protection and the financial 

integrity of the markets. After discussions with staff, the

foreign firm decided to become registered with the Commission as an FCM

Foreign Currency. The DCIO continues to work 

with the Division of Enforcement and NFA staff regarding 

retail foreign currency trading by FCMs and their affiliates

NFA submitted additional rules concerning retail foreign 

currency on August 22, 2005, which the Commission 

approved on September 15, 2005. These rules are intended to address on-going problems in the off-exchange

retail forex market by allowing NFA to impose stricter net 

capital requirements on certain persons registered as FCMs 

engaging in retail forex transactions, and to extend certain 

antifraud and customer protection rules to a greater 

number of off-exchange retail forex transactions, where 

NFA members act as intermediaries, but the counterparty 

is not an NFA member. Members are also required to provide customers with information about NFA’s registrant

database (BASIC) so that they may review the registration 

status and disciplinary history of those who solicit them

The DCIO staff has considered ways to provide additional formal guidance regarding compliance and registration issues pertaining to entities involved in retail foreign 

currency trading and has met with other divisions to 

discuss their concerns regarding issues that may be raised 

in such an advisory. Staff has also discussed issues with

NFA concerning NFA examinations and required adjusted 

net capital for firms engaged in retail forex transactions.

Foreign Futures and Option Transactions. The 

Commission also furthered the development of the offer 

and sale of foreign futures and option transactions (U.

customers trading on non-U.S. markets) in FY 2005. T

Commission issued an order to NFA authorizing NFA 

to confirm exemptive relief to certain firms acting in the 

capacity of an FCM. Specifically, FCMs that are subject

to regulation by a foreign futures authority or that are 

members of a foreign SRO in a particular jurisdiction to 

which an order under Commission Rule 30.10 has been

issued, notwithstanding that such firms may be subject, 

in part, to joint regulation by a second regulator or SRO 

in another jurisdiction. These firms are referred to in the

order as CBFBs. The Commission previously had authorized NFA to confirm exemptive relief solely to firms

subject to regulation by a single foreign futures authority 

or that are members of a foreign SRO. This order extends

the scope of that authority. Specifically, the Commission

authorized NFA to grant exemptive relief to any CBFB that 

solicits or accepts orders (and accepts money, securities 

or property to margin the trades that result or may result 

therefrom) from U.S. foreign futures and options customers and that is fully regulated, in the aggregate, by a hos

and home country regulator, each of which has received a 

Rule 30.10 Order from the Commission, or is organized

in a home country and operating pursuant to certain 

European Union directives governing cross-border activity 

(known, collectively, as the European Passport) from a 

branch located in a host country where the regulator or 

SRO has received a Rule 30.10 Order, notwithstanding

that the Commission has not issued a Rule 30.10 Order to

the home country regulator. The Commission determined

further to authorize NFA to maintain records pertaining 

to the functions described in this order and to serve as the 

official custodian of those Commission records

Hedge Funds. During FY 2005, the DCIO monitored 

the SEC’s implementation of new rules requiring registration of hedge fund advisers under the Investment Advisers 

Act of 1940

Security Futures Products and Cooperation with the 

SEC. The CFMA directs the Commission and the SEC to

implement a joint regulatory framework for SFPs and narrow-based stock index futures. As part of the on-going SFP
P E R F O R M A N C E D E TA I L S

supervisory and oversight process, the Commission and 

the SEC signed a Memorandum of Understanding (MOU) 

to clarify the ability of each agency to conduct inspections of notice-registered intermediaries, exchanges, and 

limited purpose national securities associations. The MOU

provides that the CFTC and SEC will notify each other of 

any planned examinations, advise the other of reasons 

for an intended examination, provide each other with 

examination-related information, and conduct examinations jointly, if feasible. The agencies will notify each other

of significant market issues and will share trading data and 

related market information

The DCIO permitted NFA in FY 2004 to postpone 

indefinitely updating the Series 3 and Series 30 examinations to include questions on SFPs. Staff has discussed

with NFA and the National Association of Securities 

Dealers how to accomplish eventual updating of the 

examinations, but, for the time being, salespersons will be 

permitted to continue to offer SFPs following the taking of 

a Web-based training module. The SEC is in accord with

this approach

Trade Practice. The legislative history of the CEA 

notes that one of the fundamental purposes of the Act is 

to ensure fair practices and honest dealing in the futures 

market and to control those forms of speculative activity 

that demoralize the market to the detriment of producers, consumers, and the markets. Consistent with Congress’ mandate, the Commission periodically brings trade

practice cases to address a variety of unfair, abusive, or 

deceptive ploys by traders to avoid exposing their orders 

to market risk. Such actions can create non-competitive

prices in the marketplace and have the potential to harm 

public customers, producers, and others. Improper trade

practices include a variety of activities, including trading done in violation of exchange rules, such as trading 

ahead of a customer order, wash trading, accommodation 

trading, and fictitious trading. During FY 2005, the Commission filed six enforcement actions in this program area

and also achieved significant litigation results in one action filed in this practice area during previous fiscal years

(See Appendices.

Financial, Supervision, Compliance and Recordkeeping. During FY 2005, the Commission filed one 

enforcement action in this program area and also achieved 

significant litigation results in two actions filed in this 

practice area during previous fiscal years. (See Appendices

Statutory Disqualifications. During FY 2005, the 

Commission filed five enforcement actions in this program area. (See Appendices

International Cooperative Enforcement. The Commission continues to coordinate enforcement activities 

with foreign authorities. During FY 2005, the Division

of Enforcement made 106 requests for assistance, and 

it received 18 requests from authorities in foreign jurisdictions. The Commission was successful in obtaining

assistance, including bank records, in several jurisdictions 

where we did not have prior cooperative relationships

Enforcement also has devoted time and resources to 

matters involving allegations that persons or entities have 

committed fraud or other misconduct in their cross-border activities. Such misconduct can adversely affect U

firms as well as customers located in the U.S. and overse

IOSCO’s Screening and Approving MOU Applicants. Commission staff, as members of a Multilateral 

Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information 

(MMOU) Verification Team, evaluated the applications 

of five IOSCO members to become signatories to the 

MMOU. The Commission also is a member of the Screening Group which makes recommendations to a decision

making body of IOSCO concerning whether to accept or 

reject specific MMOU applications

During FY 2005, the Commission continued its work 

on the IOSCO MMOU. The MMOU is an important and

meaningful undertaking for regulators to expand cooperation by establishing specific minimum standards for securities and futures regulators in the area of informationsharing. During FY 2005, Belgium, which the Commission

did not have an information-sharing arrangement with 

previously, became a signatory to the MMOU

Standing Committee 4. During FY 2005, staff also

continued to participate in the Standing Committee 

on Enforcement and Information-Sharing (SC4) of the 
Technical Committee of IOSCO. SC4 considers issues and

formulates recommendations relating to international assistance in the detection, investigation, and prosecution of 

securities and futures violations

Standing Committee 5. Commission staff also continued to participate in IOSCO’s Standing Committee 5

(SC5) on Investment Management. Throughout 2005, SC5

continued to consider and issue reports on several topics 

of importance to collective investment vehicles

Office of General Counsel (OGC). OGC continued

its review of requests for no-action relief to allow the offer 

and sale of foreign exchange-traded foreign stock index 

futures contracts in the U.S. In FY 2005, OGC issued thre

no-action letters for five of these foreign exchange-traded 

foreign stock index futures contracts

OGC also advised the Commission with respect to 

legislative provisions affecting the Commission contained in the Domenici-Barton Energy Policy Act of 

2005, which included provisions designed to clarify the 

Commission’s exclusive jurisdiction over futures and 

option markets and trading data. Furthermore, OGC

advised the Commission on the Energy Policy Act’s requirement that the Commission and the FERC enter into 

an information-sharing arrangement

International Policy. The Commission formulates 

international policy by: 1) coordinating with foreign 

regulatory authorities; 2) participating in international 

regulatory organizations and forums; and 3) providing 

technical assistance to foreign governmental bodies. In FY

2005, the Commission contributed to this effort by:

• Coordinating Commission representation in the Council of Securities Commissions of the Americas (COSRA), 

including contributing a paper on the benefits of futures 

trading to the securitization of small business loans 

and participating on ways to advance COSRA’s regional 

technical assistance and training initiatives;

• Providing expertise to the Committee of European 

Securities Regulators (CESR) related to their inquiry 

into acceptable market practices for commodity markets 

as part of its deliberations on possible expansion of the 

Investment Services Directive to commodity markets; 

• Promoting access to markets by organizing with CESR 

a round-table for U.S. and European futures industr

participants to discuss practical operational issues that 

most affect their conduct of trans-Atlantic business in 

exchange-traded derivatives and by developing a work 

program to review issues relating to enhanced transparency, clarity of regulatory developments and simplified 

access or recognition procedures;

• Providing assistance to the Financial Sector Assessment 

Program of the World Bank and International Monetary 

Fund; 

• Coordinating the Commission’s provision of representations and regulatory information to regulatory 

authorities in Australia, Austria, Germany, Italy, the 

Netherlands, Spain and Switzerland that supported the 

recognition of three U.S. futures exchanges electroni

trading systems;

• Coordinating the Commission’s comments to the U.

Treasury on various position papers including U.S.-India and U.S.-China dialo

• Participating in and advising the Toronto Centre on 

leadership with respect to securities and derivatives sector programs; and

• Providing technical assistance to foreign regulators 

through visits with staff at the Commission by 89 foreign persons representing 14 foreign jurisdictions, two 

on-site visits by Commission staff to foreign jurisdictions, and a week-long seminar in Chicago that examined the techniques used to promote market, firm, and 

customer protections
Market Oversight

Statistics concerning the large trader and exchange data 

collection systems are computer-generated based on the 

number of actual reports processed. Similarly, figures on

numbers of market trading reports prepared and new 

contract and rule change filings analyzed and completed 

are derived from computer records. Performance data

from regional offices and headquarters are collected 

quarterly and combined into an overall report reflecting 

performance data included in the Annual Performance 

Plan. Trends in volume, open interest, and number of

contracts approved are used to project workload statistics 

for future periods. Compliance factors, such as audits

and letters to traders and reporting firms, are reviewed 

in the context of total reports processed for anomalous 

relationships. The number of market surveillance reports

and special reports are viewed in the context of the number of markets trading and analyses that are presented at 

Commission meetings. These reports and comparisons

with indicators from previous periods are used to verify 

data accuracy

The Market and Product Review subprogram calculates the performance data included in the Commission’s 

Annual Performance Report and Annual Performance Plan

by querying its automated databases: the Filings (FILAC) 

system and the Designation and Rule Tracking (DART) 

systems. For each new exchange, these systems record

product, rule submission, information on the date received, the submission’s ultimate disposition, the date of 

disposition, and the processing time

During FY 2004 and FY 2005, the Division of Market 

Oversight (DMO) coordinated with DCIO staff and the 

Office of Information Resources Management (OIRM) to 

develop a comprehensive database system for organizations (trading facilities, clearing organizations, etc.), foreign terminal no-action relief, products, and rule amendments. This system ultimately will replace the DAR

system and provide a more efficient and effective method 

for tracking the processing of various filings received by 

DMO and DCIO

The Market Compliance subprogram’s performance 

data are continuously collected from regional and headquarters staff and are maintained at headquarters for each 

performance category. The adequacy of SROs’ sanctions

and a comparison of sanctions across all exchanges are 

conducted quarterly by regional staff and are also maintained at headquarters

Clearing and Intermediary Oversight

Compliance and Registration. The Compliance and 

Registration subprogram compiles data on discrete events, 

such as letters written, rules promulgated or revised, and 

RWG meetings held. It should be noted that statistics

on numbers of letters issued or rules promulgated may 

not reflect the complexity of any particular matter or the 

resources necessary to address one issue versus another 

P E R F O R M A N C E D E TA I L S

Methodology for Collecting, Maintaining, 

and Analyzing Performance Data
issue. In addition, matters commenced in one fiscal year

may overlap into, and be completed during, a subsequent 

fiscal year, resulting in some imprecision in statistical 

measures for a given fiscal year. Finally, the timeliness of

a response is affected by the speed with which a requester 

provides additional information sought by staff and the 

length of time required by other Commission divisions 

or offices to review a draft response (factors outside the 

control of the Compliance and Registration subprogram)

Audit and Financial Review. Each branch of the Audit and Financial Review subprogram prepares a monthly 

report that includes statistics for those projects that can be 

reported on a numerical basis and also describes special 

projects, enforcement support, and all other noteworthy 

matters that staff have worked on during the month. Statistical summaries are also prepared on a quarterly basi

Clearing Policy. The Clearing Policy subprogram

maintains an on-going status report of current and completed projects. Separately, the Commission is close to

completion of development of an electronic database to 

track all exchange and clearinghouse rule filings

Enforcement

The Enforcement program tracks several types of performance data. For example, the number of investigations

and cases opened, closed, case type (e.g., fraud, manipulation, etc.), results obtained, and matters pending i

collected and tabulated on a monthly basis and at the end 

of each fiscal year. Case status information is then crosschecked against status reports submitted by staff to the

Office of the Director of the Enforcement program. This

information is adapted for use in performance reporting 

(i.e., individual matters are identified by the goals and 

activities under which they most reasonably fall)

Other data that are routinely tracked and then adapted for use in performance reporting include sanctions 

assessed in enforcement matters. In enforcement cases,

sanctions can be assessed by resolution of: 1) Commission 

ALJs; 2) the Commission in settlement or on appeal of an 

ALJ’s decision; and 3) Federal district court actions. Upon

final disposition of the enforcement action, unsatisfied 

judgments are referred to the U.S. Treasury or the DOJ a

appropriate for collection

Finally, additional data tracked by the Enforcement 

program particularly data reflecting investigation and litigation tasks come directly from the headquarters units and 

regional offices performing the work. The Enforcement staff

from each subprogram and regional office submit monthly 

status reports on all pending matters. In conjunction with

these monthly submissions, staff are required to fill out an 

electronic form that provides specific information for each 

matter. While every effort is made to ensure that the data

obtained from the investigation and litigation teams is 

accurate, the integrity of this data is ultimately and 

primarily the responsibility of the reporting teams

Office of Proceedings

The Office of Proceedings uses “Repcase,” an integrated 

computerized case tracking system, to collect, maintain, 

and analyze performance information for each reparations 

case. The reparations case reports are separated into two sections: complaints and hearings. The data and informatio

collected in the complaints section consist of the number of 

cases pending on the first day of the month, the number of 

cases received during the month, the number of cases disposed of in complaints, and the number of cases pending at 

the end of the month. The data and information collected

for the hearings section consist of the number of cases 

pending with an ALJ or judgment officer (JO) at the beginning of the month, the number of cases assigned during the 

month (including remands, reassignments, and motions to 

vacate), the number and type of cases disposed of during 

the month, and the number of cases pending with each ALJ 

or JO at the end of the month

A separate database, Administrative Enforcement Case 

Tracking system, is used to track administrative cases, (e.g., 

administrative/enforcement, exchange, statutory disqualification, and Commission review cases). The Administrative

Enforcement Case Tracking system records the number 

of cases received during the month, the number and type 

assigned during the month, and the number and type 

disposed of during the month. Case status information is

checked on a monthly basis against status reports submitted by the ALJs, JOs, and proceedings clerk to the director of 

the Office of Proceedings. This information is adapted for

use in performance reporting
P E R F O R M A N C E D E TA I L S

Office of the General Counsel

OGC uses Repcase to collect, maintain, and analyze performance information for each reparations, enforcement, 

exchange review, and NFA case on appeal to the Commission. Statistical data is collected and reported by the

total number of: 1) Cases resolved (e.g., final disposition, 

remand, interlocutory disposition, and miscellaneous disposition); 2) matters received (e.g., merits appeals, interlocutory appeals, and miscellaneous); 3) matters pending; 

and 4) drafts pending before the Commission

OGC collects and maintains case data on an on-going 

basis. A legal program assistant uses this information to

prepare periodic reports, which are used by management to 

monitor and analyze all cases on appeal to the Commission

Biweekly Report. At the end of each biweekly period, 

the legal program assistant prepares a report for the General Counsel’s signature for submission to the Chairman

The information reported includes significant activity (e.g., 

legislative, regulatory, litigation-related, and opinions-related) in the office that occurred during that period

Monthly Opinions Report. At the end of each 

month, the legal program assistant prepares a report for 

the General Counsel’s signature. The information reported

includes all activity (e.g., disposition of cases, matters 

received, and matters pending) in the Opinions program 

that occurred during the month

Quarterly Report. At the end of each quarter, the 

Deputy General Counsel for Opinions and Review prepares a report to the Commission outlining the status of 

cases pending on the Commission’s docket

Annual Report. At the end of each fiscal year, the 

legal program assistant prepares a statistical summary that 

shows activity in the program during the fiscal year. The

report lists by category the number of matters received, 

Commission orders and opinions issued, and the number 

of cases pending at the end of the year. All issued opinions

and orders are maintained in binders filed alphabetically, 

monthly, quarterly, and annually

In preparing these reports, the legal program assistant reviews the statistical data provided by the Repcase 

tracking system as well as issued opinions and orders 

maintained in the binders. This staff member also maintains a separate tracking system of the cases on appeal,

which serves as a check against the data provided by the 

automated tracking system. All reports are reviewed and

approved by the General Counsel and/or Deputy General 

Counsel for the Opinions and Review section

Executive Direction & Support

Office of Information Resources Management. OIRM 

acts on the basis of the CFTC Strategic Plan and direction 

from the Executive Management Council. Performance

data is collected by comparing the products actually 

delivered against the requirements identified through the 

strategic planning of Commission priorities. The resources

used to deliver products based on Commission priorities are recorded in the Commission time and attendance 

data or equivalent OIRM internal records for internal FTEs 

and the Commission’s financial management system or 

equivalent OIRM internal records for purchased resources

The Commission’s technology investment priorities are 

reviewed through periodic Investment Review Board and 

Technology Review Board sessions involving key technical 

and business stakeholders. Analysis of performance data

involves comparison of resources expended on projects 

with the planned expenditures to the products delivered 

with the products planned
6

F I N A N C I A L S E C T I O N

“

“

We continue to strive for excellence in the 

financial management of the Commission as illustrated 

throughout this Performance and Accountability Report.

—Mark Carney, Chief Financial Offi
A Message From the Chief Financial Officer

F I N A N C I A L S E C T I O N

From the Chief Financial Officer

The Performance and Accountability Report for FY 2005 

presents, to the Administration and the public, the status 

of the CFTC’s program performance and fiscal operations. This document is the principal report produced

by the Commission delineating our improvements and 

progress for this year. The Commission recognizes the

importance of public disclosure and accountability to 

the Administration, to Congress, and to the American 

taxpayer. This Performance and Accountability Report is a

demonstration of our commitment to fulfill our fiduciary 

and reporting responsibilities

I am pleased to present the CFTC’s financial statements for FY 2005 as a part of this report. For the first

time, an independent public accounting firm, KPMG LLP, 

selected by our Inspector General, issued an unqualified 

or “clean” opinion on the Commission’s consolidated financial statements, which is the best possible audit result

The financial statements fairly present the Commission’s financial position and were prepared in accordance 

with standards developed by the Federal Accounting Standards Advisory Board and accounting principles generally 

accepted in the U.S. These statements are presented in th

format required by the OMB and the Government Management Reform Act of 1994

We continue to strive for excellence in the financial 

management of the Commission as illustrated throughout 

this Performance and Accountability Report. The Commission

continues its efforts to correct our four reportable conditions

Mark Carney

Chief Financial Officer

November 15, 2005
0

100

200

300

400

500

600

FY 2005 FY 2004 FY 2003 FY 2002

FULL-TIME EQUIVALENTS

485 517 497 521

0

10

20

30

40

50

FY 2005 FY 2004

$39.1

$44.4

IN MILLIONS

TOTAL LIABILITIES

 

At End of Year % Change 2005/2004 2005 2004

CONDENSED BALANCE SHEET DATA 

 Fund Balance with Treasury -11% $ 23,464,887 $ 6,304,227

 Property and Equipment 292% 1,919,650 489,638

 Accounts Receivable 476% 185,927 32,263

 Other (Custodial) -19% 28,663,845 35,402,939

TOTAL ASSETS -13% $ 54,234,309 $ 62,229,067

 

 FECA Liabilities -11% $ 629,800 $ 709,034

 Payroll, Benefits and Annual Leave 14% 8,082,514 7,079,766

 Contingent & Deposit Fund Liabilities -89% 20,094 182,426

 Accounts Payable 65% 1,692,411 1,025,643

 Custodial Liabilities -19% 28,663,845 35,402,939

 Total Liabilities -12% $ 39,088,664 $ 44,399,808 

 Cumulative Results of Operations -24% (3,939,565) (5,199,126)

 Unexpended Appropriations -17% 19,085,210 23,028,385

 Total Net Position -15% 15,145,645 17,829,259

TOTAL LIABILITIES AND NET POSITION -13% $ 54,234,309 $ 62,229,067

 

FULL-TIME EQUIVALENTS

 Market Oversight -3% 99 102

 Clearing & Intermediary Oversight -10% 62 69

 Chief Economist -11% 8 9

 Enforcement -6% 135 144

 Proceedings -7% 13 140

 General Council -6% 32 34

 Chairman/Commissioners -7% 42 45

 Executive Direction & Support -6% 94 100

TOTAL FULL-TIME EQUIVALENTS -6% 485 517

FY 2005 FY 2004

IN MILLIONS

0

5

10

15

20

$17.8

$15.1

NET POSITION

IN MILLIONS

$0

10

20

30

40

50

60

70

80

FY 2005 FY 2004

$54.2

$62.2

TOTAL ASSETS

Financial Summary
Limitations of Financial Statement

Management has prepared the accompanying financial 

statements to report the financial position and operational 

results for the CFTC for Fiscal Years 2005 and 2004 pursuant to the requirements of Title 31 of the U.S. Code, sectio

3515(b)

While these statements have been prepared from the 

books and records of the Commission in accordance with 

GAAP for Federal entities and the formats prescribed by 

OMB Circular A-136, Financial Reporting Requirements, these 

statements are in addition to the financial reports used to 

monitor and control budgetary resources, which are prepared from the same books and records

The statements should be read with the understanding 

that they represent a component of the U.S. Government

a sovereign entity. One implication of this is that the liabilities presented herein cannot be liquidated without the

enactment of appropriations, and on-going operations are 

subject to the enactment of future appropriations

 

For the Year % Change 2005/2004 2005 2004

STATEMENT OF NET COST

 Total Cost 4% $ 100,412,029 $ 96,244,924

 Earned Revenue 91% (114,705) (60,147)

TOTAL NET COST OF OPERATIONS 4% 100,297,324 96,184,777

 

NET COST BY STRATEGIC GOAL 

 Goal One - Economic Utility 9% $ 34,101,090 $ 31,402,406

 Goal Two - Market User and Public 5% 40,118,930 38,325,786

 Goal Three - Industry -1% 26,077,304 26,456,585

 4% $ 100,297,324 $ 96,184,777

2004

Goal One

33%

Goal Three

28%

Goal Two

39%

Goal One

34%

Goal Two

40%

Goal Three

26%

2005

F I N A N C I A L S E C T I O N
Commodity Futures Trading Commission

Bal

As of September 30, 2005 and 2004

 2005 2004

ASSETS 

Intragovernmental:

Fund Balance with Treasury (Note 3) $ 23,464,887 $ 26,304,227

Accounts Receivable (Note 4) 175,595 22,806

Total Intragovernmental 23,640,482 26,327,033

Custodial Fines and Interest Receivable, Net (Note 4) 28,663,845 35,402,939

Accounts Receivable (Note 4) 10,332, 9,457

Property and Equipment, Net (Note 5) 1,919,650 489,638

TOTAL ASSETS $ 54,234,309 $ 62,229,067

LIABILITIES

Intragovernmental:

FECA Liabilities $ 138,496 $ 194,102

Accounts Payable 90,950 -

Total Intragovernmental 229,446 194,102

Accounts Payable 1,601,461 1,025,643

Accrued Funded Payroll 2,852,389 2,282,462

Annual Leave 5,230,125 4,797,304

Actuarial FECA Liabilities (Note 8) 491,304 514,932

Custodial Liabilities 28,663,845 35,402,939

Contingent Liabilities (Note 10) - 182,426

Deposit Fund Liabilities 20,094 -

Total Liabilities 39,088,664 44,399,808

Commitments and Contingencies (Notes 9 And 10) 

NET POSITION

Cumulative Results of Operations (3,939,565) (5,199,126)

Unexpended Appropriations 19,085,210 23,028,385

Total Net Position 15,145,645 17,829,259

TOTAL LIABILITIES AND NET POSITION $ 54,234,309 $ 62,229,067

The accompanying notes are an integral part of these financial statements.

Principal Financial Statements
F I N A N C I A L S E C T I O N

Unaudited 

 2005 2004

GOAL ONE: Ensure the economic vitality of the commodity futures and option markets 

Intragovernmental Gross Costs $ 5,839,022 $ 4,297,937

Less: Earned Revenue (35,169) (10,605)

Intragovernmental Net Cost of Operations 5,803,853 4,287,332

Gross Costs With the Public 28,301,068 27,124,106

Less: Earned Revenue (3,831) (9,032)

Net Cost of Operations With the Public 28,297,237 27,115,074

NET COST OF OPERATIONS - GOAL ONE 34,101,090 31,402,406

GOAL 2: Protect market users and the public

Intragovernmental Gross Costs 6,869,438 5,245,515

Less: Earned Revenue (41,375) (12,943)

Intragovernmental Net Cost of Operations 6,288,063 5,232,572

Gross Costs With the Public 33,295,374 33,104,237

Less: Earned Revenue (4,507) (11,023)

Net Cost of Operations With the Public 33,290,867 33,093,214

NET COST OF OPERATIONS - GOAL TWO 40,118,930 38,325,786

GOAL 3: Ensure market integrity in order to foster open, competitive, and financially sound markets

Intragovernmental Gross Costs 4,465,134 3,621,020

Less: Earned Revenue (26,894) (8,934)

Intragovernmental Net Cost of Operations 4,438,240 3,612,086

Gross Costs With the Public 21,641,993 22,852,109

Less: Earned Revenue (2,929) (7,610)

Net Cost of Operations With the Public 21,639,064 22,844,499

NET COST OF OPERATIONS - GOAL THREE 26,077,304 26,456,585

GRAND TOTAL

Intragovernmental Gross Costs 17,173,594 13,164,472

Less: Earned Revenue (103,438) (32,482)

Intragovernmental Net Cost of Operations 17,070,156 13,131,990

Gross Costs With the Public 83,238,435 83,080,452

Less: Earned Revenue (11,267) (27,665)

Net Cost of Operations With the Public 83,227,168 83,052,787

TOTAL NET COST OF OPERATIONS $ 100,297,324 $ 96,184,777

Commodity Futures Trading Commission

Sttem

For the Years Ended September 30, 2005 and 2004

The accompanying notes are an integral part of these financial statements.
Commodity Futures Trading Commission

Stteent

For the Years Ended September 30, 2005 and 2004

 Unaudited

 September 30, 2005 September 30, 2004

 Cumulative Results Unexpended Cumulative Results Unexpended

 Of Operations Appropriations Of Operations Appropriations

 

BALANCES, OCTOBER 1 $ (5,199,126) $ 23,028,385 $ (2,957,781) $ (23,550,666)

BUDGETARY FINANCING SOURCES

Appropriations:

 Received - 94,327,000 - 90,435,000

Less: Rescinded - (754,616) - (533,567)

Less: Canceled - (289,267) - (339,153)

Used to Aquire and Provide

Goods and Services 97,226,292 (97,226,292) 90,084,561 (90,084,561)

OTHER FINANCING SOURCES

Imputed Financing Sources 4,330,593 - 3,858,871 -

Total Financing Sources 101,556,885 (3,943,175) 93,943,432 (522,281)

Net Cost of Operations (100,297,324) - (96,184,777) - 

Net Change 1,259,561 (3,943,175) (2,241,345) (522,281)

BALANCES, SEPTEMBER 30 $ (3,939,565) $ 19,085,210 $ (5,199,126) $ 23,028,385

The accompanying notes are an integral part of these financial statements.
F I N A N C I A L S E C T I O N

Commodity Futures Trading Commission

Sttem

For the Years Ended September 30, 2005 and 2004

 Unaudited 

 2005 2004

BUDGETARY RESOURCES

Unobligated Balances, October 1 $ 1,395,503 $ 9,340,776

Recoveries of Prior Year Unpaid Obligations 6,920,117 8,902,248

Total Prior Resources 8,315,620 18,243,024

New Resources: 

Appropriations 94,327,000 90,435,000

Spending Authority from Offsetting Collections

 Collected 69,394 554,529

 Change in Federal Receivables 152,789 22,806

Total New Resources 94,549,183 91,012,335

Permanently Not Available:

Cancellation of Expired Accounts (289,267) (339,153)

Enacted Reduction (754,616) (533,567)

TOTAL BUDGETARY RESOURCES $101,820,920 $108,382,639

STATUS OF BUDGETARY RESOURCES

Obligations Incurred, Direct $ 98,029,681 $ 106,949,795

Obligations Incurred, Reimbursable 22,698 37,341

Total Obligations Incurred 98,052,379 106,987,136

Unobligated Balance Apportioned 768,613 38,613

Unobligated Balance Not Available 2,999,928 1,356,890

TOTAL STATUS OF BUDGETARY RESOURCES $ 101,820,920 $ 108,382,639

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS

Net Obligated Balance, October 1

Unpaid Obligations $ 24,931,530 $ 19,713,939

Uncollected Payments from Federal Sources (22,806) -

Net Obligated Balance, October 1 24,908,724 19,713,939

Gross Obligations Incurred 98,052,379 106,987,136

Gross Outlays (96,211,945) (92,867,297)

Recoveries of Prior Year Unpaid Obligations (6,920,117) (8,902,248)

Change in Federal Receivables (152,789) (22,806)
Commodity Futures Trading Commission

Sttem

For the Years Ended September 30, 2005 and 2004 (continued)

Unaudited 

 2005 2004

Net Obligated Balance, September 30

Unpaid Obligations 19,851,847 24,931,530

Uncollected Payments from Federal Sources (175,595) (22,806)

Net Obligated Balance, September 30 19,676,252 24,908,724

Unreconciled Differences $ - $ -

NET OUTLAYS

Gross Outlays $ 96,211,945 $ 92,867,297

Offsetting Collections Received (69,394) (554,529)

Distibuted Offsetting Reciepts (9,474) (13,541)

NET OUTLAYS $ 96,133,077 $ 92,299,227

The accompanying notes are an integral part of these financial statements.
F I N A N C I A L S E C T I O N

The accompanying notes are an integral part of these financial statements.

Commodity Futures Trading Commission

Stt

For the Years Ended September 30, 2005 and 2004

 Unaudited

 2005 2004

RESOURCES USED TO FINANCE ACTIVITIES 

Obligations Incurred $ 98,052,379 $106,987,136

Less: Spending Authority from Offsetting Collections and Recoveries $ (7,142,300) $ (9,479,583)

Net Obligations 90,910,079 97,507,553

Offsetting Receipts (9,474) (13,541)

Net Obligations After Offsetting Receipts 90,900,605 97,494,012

Other Resources – Imputed Financing from Cost Absorbed by Others 4,330,593 3,858,871

Total Resources Used to Finance Activities 95,231,198 101,352,883

RESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF OPERATIONS

Offsetting Receipts 9,474 13,541

Change in Undelivered Orders 6,316,378 (7,483,065)

Resources that Finance the Net Acquisition of Fixed Assets (1,472,567) (196,857)

Total Resources Used to Finance Items Not Part of the Net Cost of Operations 4,853,285 (7,666,381)

Resources Used to Finance the Net Cost of Operations 100,084,483 93,686,502

COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL NOT REQUIRE OR 

GENERATE RESOURCES IN THE CURRENT PERIOD

Decrease in Accounts Receivable from the Public (Refunds) (875) -

Change in Unfunded Annual Leave, FECA Expenses and Contingent Liabilities 171,161 2,364,826

Total Cost of Items That Will Generate Resources in Future Periods 170,286 2,364,826

COMPONETS NOT REQUIRING OR GENERATING RESOURCES

Depreciation and Amortization 134,562 128,239

Contract Refund and Other (92,007) 5,210

Total Components Not Requiring or Generating Resources 42,555 133,449

NET COST OF OPERATIONS $ 100,297,324 $ 96,184,777
Commodity Futures Trading Commission

Sttem

For the Years Ended September 30, 2005 and 2004

 Unaudited

 2005 2004

REVENUE ACTIVITY 

SOURCES OF CASH COLLECTIONS

Registration and Filing Fees $ 742,133 $ 768,130

Fines, Penalties, and Forfeitures 34,260,078 122,468,925

General Proprietary Receipts 9,474 13,541

Total Cash Collections 35,011,685 123,250,596

Change in Custodial Fines and Interest Receivable (6,739,094) 35,376,188

Total Custodial Revenue 28,272,591 158,626,784

DISPOSITION OF COLLECTIONS

TRANSFERRED TO OTHERS, BY RECIPIENT:

Transferred to Treasury (35,011,685) (123,250,596)

Change in Custodial Liabilities 6,739,094 (35,376,188)

NET CUSTODIAL ACTIVITY $ - $ -

The accompanying notes are an integral part of these financial statements.

7
F I N A N C I A L S E C T I O N

Notes to the Financial Statements

As of and For the Fiscal Years Ended

September 30, 2005 and

Note 1. Reporting Entit

The Commodity Futures Trading Commission (CFTC) 

is an independent agency of the executive branch of the 

Federal Government. Congress created the CFTC in 1974

under the authorization of the Commodity Exchange Act 

with the mandate to regulate commodity futures and option markets in the United States. The agency’s mandate

was renewed and expanded under the Futures Trading Acts 

of 1978, 1982, and 1986; under the Futures Trading Practices Act of 1992; and under the CFTC Reauthorization 

Act of 1995. The Commodity Futures Modernization Act

of 2000 reauthorized the Commission through FY 2005

Since its inception, the CFTC has continuously operated 

through authorized appropriations

The CFTC is responsible for ensuring the economic 

utility of futures markets by encouraging their competitiveness and efficiency, ensuring their integrity, and protecting market participants against manipulation, abusive 

trade practices, and fraud

Note 2. Summary of Significant Accounting Policie

A. Basis of Presentation 

The financial statements have been prepared to report 

the financial position and results of operations for the 

CFTC, as required by the Chief Financial Officers’ Act of 

1990 along with the Accountability of Tax Dollars Act of 

2002, and the Government Management Reform Act of 

1994. They are presented in accordance with the form

and content requirements contained in Office of Management and Budget (OMB) Circular A-136, “Financial 

Reporting Requirements.” 

The financial statements have been prepared from 

the agency’s books and records in conformity with generally accepted accounting principles in the United States 

of America as prescribed for the federal government 

by the Federal Accounting Standards Advisory Board 

(FASAB), promulgated by the Office of Management and 

Budget (OMB), and the agency’s accounting policies as 

summarized in this note

The financial statements report on the CFTC’s 

financial position, net cost of operations, changes in net 

position, budgetary resources, financing, and custodial 

activities of the CFTC. The books and records of the

agency served as the source of information for preparing 

the financial statements in the prescribed formats. All

agency financial statements and reports used to monitor 

and control budgetary resources are prepared from the 

same books and records. The statements should be read

with the understanding that they are for a component of 

the U.S. Government, a sovereign enti

The Balance Sheets present the financial position 

of the agency. The Statements of Net Cost present the

agency’s operating results, the Statements of Changes in 

Net Position display the changes in the agency’s equity 

accounts. The Statements of Budgetary Resources present the sources, status, and uses of the agency’s resources

and follows the rules for the Budget of the United States 

Government. The Statements of Financing present the

reconciliation of the agency’s use of budgetary resources 

with its operating results. The Statements of Custodial

Activity present the sources and disposition of collections 

for which the CFTC is the fiscal agent, or custodian, for the 

Treasury General Fund Miscellaneous Receipt accounts

B. Budgetary Resources and Status 

The CFTC is funded through Congressionally approved 

appropriations. The CFTC is responsible for administering

the salaries and expenses of the agency through the execution of these appropriations

For these annual statements, there is no material difference between the Statement of Budgetary Resources and 

related budgetary information reported to OMB, or in the 

alignment to the Budget of the U.S. Governme

Congress annually enacts one-year appropriations 

that provide the CFTC with the authority to obligate 

funds within the respective fiscal year for necessary 

expenses to carry out mandated program activities. In

addition, Congress enacted a permanent indefinite appropriation that is available until expended. All appropriations are subject to quarterly apportionment as well

as Congressional restrictions
CFTC’s budgetary resources for FY 2005 consist of: 

• Unobligated balances of resources brought forward 

from the prior year, 

• Recoveries of obligations in prior years, and 

• New resources in the form of appropriations and 

spending authority from offsetting collections

Unobligated balances associated with resources 

expiring at the end of the fiscal year remain available for 

five years after expiration only for upward adjustments of 

prior year obligations, after which they are canceled and 

may not be used. All unused monies related to canceled

appropriations are returned to Treasury and the canceled 

authority is reported as a line item on the Statements of 

Budgetary Resources and the Statements of Changes in 

Net Position

C. Entity and Non-Entity Assets

Assets consist of entity and non-entity assets. Entity assets

are those assets that the CFTC has authority to use for its 

operations. Non-entity assets are those held by the CFTC

that are not available for use in its operations. Non-entity

assets held by the CFTC include deposit fund balances and 

custodial fines and interest receivable, net.

D. Fund Balance with Treasury 

Fund Balance with Treasury is the aggregate amount of the 

CFTC’s funds with Treasury in expenditure, receipt, and 

deposit fund accounts. Appropriated funds recorded in

expenditure accounts are available to pay current liabilities 

and finance authorized purchases. Custodial collections

recorded in the deposit fund account and miscellaneous 

receipts accounts of the Treasury are not available for 

agency use. At fiscal year end, receipt account balances are

cleared and returned to Treasury

The CFTC does not maintain bank accounts of its 

own, has no disbursing authority, and does not maintain 

cash held outside of Treasury. Treasury disburses funds for

the agency on demand. Spending authority from offsetting

collections is recorded in the agency’s expenditure account 

and is available for agency use subject to certain limitations. (See Note 3

E. Accounts Receivable 

Accounts receivable consists of amounts owed by other 

federal agencies and the public to the CFTC and is valued 

net of an allowance for uncollectible amounts. The allowance is based on past experience in the collection

of receivables and analysis of the outstanding balances

Accounts receivable arise from reimbursable operations, 

earned refunds or the Civil Monetary Sanctions program

(See Note 4.

F. Property and Equipment 

Property and equipment represents furniture, fixtures, 

equipment, and information technology hardware and software, which are capitalized and depreciated or amortized 

over their useful lives

The CFTC capitalizes assets annually if they have 

useful lives of at least two years and an individual value of 

$25,000 or more. Bulk or aggregate purchases are capitalized when the individual useful lives are at least two years

and a value of $25,000 or more. Property and equipment

that does not meet the capitalization criteria are expensed 

when acquired. Depreciation and amortization is computed

on a straight-line basis using a five-year life. Agency assets

are valued net of accumulated depreciation. (See Note 5.

G. Liabilities

The CFTC’s liabilities consist of actual and estimated 

amounts that are likely to be paid as a result of transactions; that are covered by budgetary resources for which 

Congress has appropriated funds or funding, or are 

otherwise available from reimbursable transactions to pay 

amounts due

Liabilities include those covered by budgetary resources in existing legislation and those not covered by 

budgetary resources (See Note 6). The CFTC liabilities not

covered by budgetary resources include: 

• Deposit funds, 

• Contingent liabilities, 

• Actuarial Federal Employees Compensation Act (FECA) 

liabilities, 

• Annual leave benefits which will be funded by annual 

appropriations as leave is taken,
F I N A N C I A L S E C T I O N

• Custodial liabilities for custodial revenue transferred to 

Treasury at fiscal year end

The CFTC’s liabilities that are covered by budgetary 

resources are considered current liabilities

H. Accounts Payable 

Accounts payable consists primarily of contracts for 

goods or services, such as leases, utilities, telecommunications, and consulting and support services. Accounts

payable to other Federal agencies are designated as 

“intragovernmental.

I. Accrued Payroll and Benefits and Annual Leave 

Liability

The accrued payroll liability represents amounts for salaries and benefits owed for the time since the payroll was 

last paid through the end of the fiscal year. The annual

leave liability is the amount owed employees for unused 

annual leave as of the end of the fiscal year. At the end of

each fiscal year, the balance in the accrued annual leave 

account is adjusted to reflect current balances and pay 

rates. Sick leave and other types of non-vested leave are

expensed as taken

The agency’s employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees’ 

Retirement System (FERS). On January 1, 1987, FERS went

into effect pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior t

January 1, 1984, could elect to either join FERS and Social 

Security or remain in CSRS

For employees under FERS, the CFTC contributes 

an amount equal to one percent of the employee’s basic 

pay to the tax deferred thrift savings plan and matches 

employee contributions up to an additional four percent 

of pay. FERS employees can contribute 15 percent of their

gross earnings to the plan. CSRS employees are limited to

a contribution of 10 percent of their gross earnings and 

receive no matching agency contribution

J. Deposit Funds

Deposit funds are expenditure accounts used to record 

monies that do not belong to the Federal government

They are held awaiting distribution based on a legal 

determination or investigation. The CFTC deposit fund is

used to record and later distribute monetary awards to the 

appropriate defendants as restitution.

K. Net Position

Net position consists of unexpended appropriations and 

cumulative results of operations

Unexpended appropriations are appropriations that 

have not yet been used to acquire goods and services or 

provide benefits. Appropriations are considered expended,

or used, when goods and services have been acquired by 

the CFTC or benefits have been provided using the appropriation authority, regardless of whether monies have 

been paid or payables for the goods, services, or benefits 

have been established. Appropriations were used primarily to acquire goods and services to operate the CFTC’s

programs or to provide benefits

Cumulative results of operations represent the excess 

of financing sources over expenses since inception. Cumulative results of operations are derived from the net effect

of capitalized assets, expenses, exchange revenue, and 

unfunded liabilities

L. Revenues

The CFTC receives reimbursement and earns revenue for 

the following activities:

• Reimbursement for travel, subsistence, and related 

expenses from federal and non-federal sources for attendance at meetings or similar functions that an employee 

has been authorized to attend in an official capacity on 

behalf of the Commission

• Reimbursement for Intergovernmental Personnel Act 

Mobility Program assignments from state and local governments, institutions of higher education, and other 

eligible organizations for basic pay, supplemental pay, 

fringe benefits, and travel and relocation expenses

• Reimbursement from non-federal sources for registration fees to cover the cost of expenses related to the 

CFTC’s annual International Regulators Conference

M. Net Cost of Operations 

Net cost of operations is the difference between the 

CFTC’s expenses and its earned revenue. The presentation of program results by strategic goals is based on
the CFTC’s current Strategic Plan established pursuant 

to the Government Performance and Results Act (GPRA) 

of 1993

The mission statement of the CFTC is to protect 

market users and the public from fraud, manipulation, 

and abusive practices related to the sale of commodity and 

financial futures and options, and to foster open, competitive, and financially sound futures and option markets

The mission is accomplished through three strategic goals, 

• Ensure the economic vitality of the commodity futures 

and option markets

• Protect market users and the public

• Ensure market integrity in order to foster open, competitive, and financially sound markets

N. Gross Costs and Earned Revenue by Budget 

Functional Classification

The CFTC’s gross costs, earned revenue, and intragovernmental transactions align with the three strategic goals 

based on the agency mission statement related to protecting market users and the public

O. Reconciliation of Net Obligations and Net 

Cost of Operations 

The Statements of Financing reconcile the net obligations with the net cost of operations. Net obligations,

reported on the Statements of Budgetary Resources, are 

calculated by subtracting downward adjustments of priorperiod obligations and offsetting collections from gross 

obligations. The net cost of operations, reported on the

Statements of Net Cost represents the difference between 

gross costs and earned revenue

Other resources used to finance activity, such as imputed costs from the Statements of Changes in Net Position, are added to net obligations to derive total resources 

used to fund activities. Resources used to finance items

not part of the net cost of operations, such as undelivered 

orders are added to the reconciliation

The reconciliation is finalized by adding in items 

in the net cost of operations that do not generate or use 

resources in the current period. This includes costs and

earned revenues which will never generate or use resources, such as depreciation expense. This also includes those

which will generate or use resources in a future period, 

such as benefits expense resulting from the increase in 

annual leave liability, which is accrued for purposes of 

the Statements of Net Cost, but is not funded until leave 

is taken

P. Custodial Activity 

The CFTC collects penalties and fines levied against firms 

for violation of laws as described in the Commodity 

Exchange Act as codified at 7 U.S.C. § 1, et seq., and 

Commodity Futures Modernization Act of 2000, Appendix 

E of PL.106-554, 114 Stat. 2763. Unpaid fines, penalti

and accrued interest are reported as custodial receivables, 

with an associated custodial liability. The receivables and

the liability are reduced by losses determined to be uncollectible. Revenues earned and the losses from bad debts

are reported to Treasury

Collections made by CFTC during the year are deposited and reported into designated Treasury miscellaneous 

receipt accounts for: 

• Registrations and filing fees, 

• Fees, fines, penalties and forfeitures, and 

• General miscellaneous recoveries and refunds

At fiscal year end, custodial collections made by CFTC 

are returned to Treasury. The CFTC does not retain any

amount for custodial activities including reimbursement 

of the cost of collection

Q. Use of Management Estimates 

The preparation of the accompanying financial statements in accordance with accounting principles generally 

accepted in the United States requires management to 

make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenues, and 

expenses. Actual results could differ from these estimate

R. Tax Status

The CFTC is not subject to Federal, State or local income 

taxes. Accordingly, no provision for income taxes is recorde
F I N A N C I A L S E C T I O N

Note 3. Fund Balance with Treasur

A. Reconciliation to Treasury:

There are no differences between the Fund Balance reflected in the CFTC Balance Sheets and the balance in the 

Treasury accounts

B. Fund Balances:

Fund Balances with Treasury consist of entity assets such 

as appropriations and reimbursements for services rendered. Obligation of these funds is controlled by quarterly

apportionments made by the OMB. Work performed

under reimbursable agreements is initially financed by the 

annual appropriation and is subsequently reimbursed

Other funds include non-entity deposit fund receipts

Fund Balance with Treasury at September 30, 2005 

and 2004, consisted of the following:

 2005 2004

Appropriated Funds $ 23,444,793 $ 26,304,227

Other Funds: 

Deposit Funds 20,094 -

TOTAL FUND BALANCE WITH TREASURY $ 23,464,887 $ 26,304,227

C. Status of Fund Balance with Treasury:

The Status of Fund Balance with Treasury at 

September 30, 2005 and 2004, consisted of the following:

 

 2005 2004

Appropriated Funds

Unobligated Fund Balance

-Available $ 756,075 $ 16,360

-Expired 12,538 22,253

-Unavailable 2,999,928 1,356,890

Obligated Balance Not Yet Disbursed 19,676,252 24,908,724

Deposit Fund 20,094 -

TOTAL FUND BALANCE WITH TREASURY $ 23,464,887 $ 26,304,227
Note 4. Accounts Receivabl

Accounts receivable consist of amounts owed to the CFTC 

by other Federal agencies and the public. Accounts receivable are valued net of estimated uncollectibles. Non-custodial accounts receivable are primarily for overpayments o

expenses to other agencies, or vendors, and repayment of 

employee benefits. Historical experience has indicated that

most of the non-custodial receivables are collectable and 

there are no material uncollectible amounts

Custodial receivables (non-entity assets) are those for 

which fines and penalties have been assessed and levied 

against businesses for violation of law. The CFTC litigates

against defendants for alleged violations of the CEA, as 

amended. Violators may be subject to a variety of sanctions including fines, injunctive orders, bars or suspensions, rescissions of illegal contracts, disgorgements, and

restitutions to customers

Historical experience has indicated that a high percentage of custodial receivables prove uncollectible. The

methodology used to estimate the allowance for uncollectible amounts related to custodial accounts is that custodial receivables are considered 100 percent uncollectible 

unless otherwise noted in the judgment. An allowance for

uncollectible accounts has been established and included 

in accounts receivable on the balance sheet. The allowance

is based on past experience in the collection of accounts 

receivable and analysis of outstanding balances. Accounts

are reestimated quarterly based on account reviews and 

the agency determination that changes to the net realizable value are needed

Accounts receivable, as of September 30, 2005 and 

2004, consisted of the following:

 2005 2004

Intragovernmental Accounts Receivable $ 175,595 $ 22,806

Custodial Fines and Interest Receivables, Net: 

Civil Monetary Penalty Interest $ 2,501,590 $ 65,253,060

Less: Allowance for Loss on Interest (2,290,056) (65,253,060)

Civil Monetary Penalties, Fines, and Administrative Fees 328,168,373 465,735,791

Less: Allowance for Loss on Penalties, Fines and Administrative Fees (299,716,062) (430,332,852)

Net Custodial 28,663,845 35,402,939

Other 10,332 9,457

Total Accounts Receivable With the Public $ 28,674,177 $ 35,412,396
F I N A N C I A L S E C T I O N

2005 Accumulated

 Amortization/

Major Class Service Life and Method Cost Depreciation Net Book Value

Equipment 5 Years/Straight Line $ 562,894 $ 176,878 $ 386,016

IT Software 5 Years/Straight Line $ 1,580,271 $ 46,637 $ 1,533,634

Total Property and Equipment $ 2,143,165 $ 223,515 $ 1,919,650

2004 Accumulated 

 Amortization/

Major Class Service Life and Method Cost Depreciation Net Book Value

Equipment 5 Years/Straight Line $ 428,040 $ 87,830 $ 340,210

IT Software 5 Years/Straight Line $ 284,301 $ 134,873 $ 149,428

Total Property and Equipment $ 712,341 $ 222,703 $ 489,638

Note 6. Liabilities Not Covered by Budgetary Resource

As of September 30, 2005 and 2004, the following 

liabilities not covered by budgetary resources exist:

 2005 2004

Intragovernmental-FECA $ 138,496 $ 194,102

Annual Leave 5,230,125 4,797,303

Actuarial FECA 491,304 514,932

Contingent Liabilities - 182,426

Deposit Fund 20,094 -

TOTAL LIABILITIES NOT COVERED BY BUDGETARY RESOURCES $ 5,880,019 $ 5,688,764

Note 5. Property and Equipment, Ne

Assets are capitalized annually if they have useful lives of 

at least two years and an individual value of $25,000 or 

more. Bulk or aggregate purchases are capitalized when

the individual useful lives are at least two years and a 

value of $25,000 or more. Depreciation and amortization

is computed on a straight-line basis using a five-year life

The CFTC did not defer any maintenance in FY 2005 and 

FY 2004. Property and equipment, net, as of September

30, 2005 and 2004, consisted of the following:
Note 7. Retirement Plans and Other Employee

Benefits

The CFTC imputes costs and the related financing source 

for its share of retirement systems accruing to its past and 

present employees that are in excess of the amount of 

contributions from the CFTC and its employees, which are 

mandated by law. The Office of Personnel Management

(OPM), which administers Federal civilian retirement 

programs, provides the cost information to the CFTC. The

CFTC recognizes the full cost of providing future pension 

and Other Retirement Benefits (ORB) for current employees as required by SFFAS No. 5, Accounting for Liabilities of

the Federal Government

Full costs include pension and ORB contributions 

paid out of the CFTC’s appropriations and costs financed 

by OPM. The amount financed by OPM is recognized as

an imputed financing source. Reporting amounts such as

plan assets, accumulated plan benefits, or unfunded liabilities, if any, is the responsibility of OPM

Liabilities for future pension payments and other 

future payments for retired employees who participate in 

the Federal Employees Health Benefits Program (FEHBP) 

and the Federal Employees Group Life Insurance Program 

(FEGLI) are reported by OPM rather than the CFTC

Note 8. Actuarial FECA Liabilities

The Federal Employees Compensation Act (FECA) provides income and medical cost protections to covered 

federal civilian employees injured on the job, to employees who have incurred work-related occupational 

diseases and to beneficiaries of employees whose deaths 

are attributable to job-related injuries or occupational 

diseases. The FECA program is administered by the U

Department of Labor (DOL), which pays valid claims 

against the Department and subsequently seeks reimbursement from the Department for these paid claims

Accrued FECA liabilities represent amounts due to DOL 

for claims paid on behalf of the agency

Actuarial FECA liability represents the liability for 

future workers compensation (FWC) benefits, which 

includes the expected liability for death, disability, 

medical, and miscellaneous cost for approved cases

The liability is determined using a formula provided by 

DOL annually as of September 30th using a method that 

utilizes historical benefits payment patterns related to a 

specific incurred period to predict the ultimate payments 

related to that period. The projected annual benefits

payments are discounted to present value using OMB’s 

economic assumptions for ten-year Treasury notes and 

bonds. To provide more specifically for effects of inflations on liability for FWC benefits, wage inflation factors

(Consumer Price Index-Medical) are applied to the calculation of projected future benefits. These factors are also

used to adjust historical payment so benefits are stated in 

current-year constant dollars

Note 9. Leases

The CFTC leases office space in publicly owned buildings 

for its locations in Washington D.C., Chicago, New York

Minneapolis, and Kansas City. The lease contracts for publicly-owned buildings are operating leases. The CFTC ha

no real property. Future lease payments are not accrued as

liabilities and are expensed as incurred

As of September 30, 2005, future estimated minimum lease payments through FY 2010, and thereafter, are 

as follows:

Note 10. Contingent Liabilitie

The CFTC records contingent liabilities for cases in 

which payment has been deemed probable and for which 

the amount of potential liability has been estimated, 

including certain judgments that have been issued against 

the agency and which have been appealed. In FY 2004, the

U.S. District Court held the CFTC liable for $182,425 fo

violation of the Equal Access to Justice Act and a contingent liability was established. In FY 2005, the U.S. Distri

Court found in favor of the CFTC and the contingent 

liability was terminated. As of September 30, 2005, no

contingent liabilities exist.

Fiscal Year Dollars

2006 $ 10,926,612

2007 11,343,178

2008 11,654,861

2009 11,942,110

2010 12,207,780

Thereafter 40,996,482

TOTAL FUTURE MINIMUM LEASE PAYMENTS $ 99,071,023
Required Supplementary Information

 

 2005 2004

As

Fund Balance with Treasury $ 23,464,887 $ 26,304,227

ACCOUNTS RECEIVABLE:

Postal Service 446 -

Department of Treasury 175,149 -

Executive Office of the President - 22,806

Total Intragovernmental Assets $ 23,640,482 $ 26,327,033

Li

Department of Labor (FECA) $ 138,496 $ 194,102

ACCOUNTS PAYABLE:

General Services Administration $ 51,491 -

Government Printing Office 2,451 -

Department of Treasury 11,070 -

Department of Agriculture 16,250 -

Department of Health and Human Services 2,352 -

Library of Congress 1,200 -

Federal Reserve Board 6,136 -

Total Accounts Payable 90,950 -

Total Intragovernmental Liabilities $ 229,446 $ 194,102

Detailed Information on Intragovernmental Amounts 

Intragovernmental assets and liabilities as of September 30, 2005 and 2004 consisted of the following:

F I N A N C I A L S E C T I O N
A Report of the Independent Auditors

8
Financial Details

F I N A N C I A L S E C T I O N

Financial Details

F I N A N C I A L S E C T I O N F I N A N C I A L D E TA I L S

Financial Details

F I N A N C I A L S E C T I O N

F I N A N C I A L S E C T I O N

F I N A N C I A L S E C T I O N
9
Financial Details

F I N A N C I A L S E C T I O N

Credit Management and Debt Collection 

Improvement Act 

The CFTC has designed and implemented a comprehensive debt collection program that enables us to effectively 

administer our multimillion-dollar civil monetary sanctions program. The debt collection program covers account servicing, collection, and close-out and it conforms

to the government-wide policies in the Federal Claims 

Collection Standards, the OMB Circular A-129, and the 

Debt Collection Improvement Act

The Commission has $28.7 million in outstanding

civil monetary sanctions which accounts for almost 100 

percent of its outstanding debt. The other category of debt

that it manages, other administrative debt, is negligible

As of September 30, 2005 the CFTC has forwarded approximately 95 percent of all debts eligible for referral to 

Treasury for servicing

Federal Information Security Management 

Act and Agency Privacy Management

The Commission is in substantial compliance with the 

Federal Information Security Management Act of 2002 

(FISMA) also known as Title III of the E-Government Act 

of 2002. FISMA requires each Federal agency to provide

information security for its information technology assets

Our Independent Auditors’ Report disclosed one instance 

of noncompliance with FISMA. The purpose of FISMA is

to provide a framework for enhancing the effectiveness of 

information security in the Federal government. FISMA

also provides a mechanism for effective oversight of Federal agency information security programs. In Fiscal Year

2005, OMB introduced a new privacy management section 

of FISMA reporting, which removes privacy compliance 

reporting from the annual E-Government Act report to the 

annual FISMA report. FISMA requires system owners to

annually review certification and accreditation status of all 

systems, including those that are accredited (i.e., granted 

an approval to operate)

E-Government Act of 20

Each year OMB reports to Congress, a summary of the information reported by agencies. In 2005, the Commission

provided a brief overview of our process for determining 

which information will be made available on the Internet 

as well as our implementation accomplishments

In FY 2005, the CFTC made significant progress 

toward implementation of the policies and best practices 

published by the Interagency Committee on Government Information as required by Section 207(f)(2) of the 

E-Government Act of 2002. Specifically, CFTC compiled

and published a Web site inventory; established a privacy 

policy in machine-readable format for visitors to the Web 

site; completed the administration and publication of 

CFTC forms to the new government-wide forms portal; 

Other Statutorily Required Reports

F I N A N C I A L S E C T I O N
and upgraded its search engine to provide improved customer functionality and internal reporting capabilities. In

an effort to gather essential information about customer 

satisfaction, CFTC entered into an agreement with the 

Federal Consulting Group and its partner, Foresee Results 

Inc., to publish a survey to the www.CFTC.gov Web sit

This survey is providing valuable information on customer 

needs and behaviors for on-going enhancements to the 

Web site. The CFTC has a long-standing policy of placing

as much information as possible and practicable on its 

Web site

One noteworthy highlight was implementation of an 

automated strategic workforce planning system. Support

by agency senior leadership of a more transparent and 

participative approach to resource management guided 

the selection of an on-line survey that drew on the collective expertise of all employees to inventory the missioncritical competencies needed over the life of the CFTC 

strategic plan

The Commission Participated in Several 

E-Gov Initiatives During FY 200

Personnel Security e-Clearance. In FY 2005, CFTC 

implemented a 100 percent electronic Personnel Security 

and Suitability process with the installation of electronic 

fingerprinting units in its Chicago, Washington, D.C.

Kansas City and New York offices. CFTC now electronically captures and transmits fingerprints as part of the

required background investigations conducted by the 

OPM. This equipment is certified by the FBI in compliance

with the FBI’s Integrated Automated Fingerprint Identification System. This technology significantly improved the

satisfactory classification rate of fingerprints, as well as the 

timeliness in processing and receiving results of fingerprint checks

Financial Management. In FY 2005, CFTC selected an 

OMB-approved Financial Management Center of Excellence and initiated the migration process. This migration

will be completed in FY 2006

Travel Management. In FY 2005, CFTC initiated 

migration to an electronic travel system solution through 

an OMB-approved Financial Management Center of Excellence and initiated the migration process. This migration

will be completed in FY 2006

eLearning. The CFTC offers on-line training consistent with the eLearning initiative and in FY 2005 started 

planning to broaden the range of on-line course offerings

Enterprise Human Resources Integration (EHRI).

In FY 2005, CFTC participated in the planning activities 

for the e-Government services that are in the development 

stage for the EHRI project, including imaging CFTC employee personnel records. Our staff has also contributed to

the development of the related e-Payroll and HR Line of 

Business projects

Financial Education Web site. Through a partnership 

with 19 other Federal agencies, the CFTC helped launch 

a new financial education Web site and toll-free hotline 

number. The www.mymoney.gov Web site and the 1-888

mymoney toll-free hotline were established to provide 

Americans easily access to information that can help them 

save, invest, and manage their money wisely to meet important personal goals
F I N A N C I A L S E C T I O N
A P P E N D I C E S
A P P E N D I C E S

Inspector General’s Assessment of Management Challenges 98

Enforcement Litigation by Strategic Goal One 102

Enforcement Litigation by Strategic Goal Two 106

Enforcement Litigation by Strategic Goal Three 113

Glossary of Acronyms . 

Appendices
Inspector General’s Assessment 

of Management Challenges
A P P E N D I C E S
10
1

A P P E N D I C E S
Litigation by Goal One

Goal One: Ensure the economic vitality of the commodity futures and option markets.

Manipulation Attempted Manipulation & False Reporting. Manipulation investigations and litigations tend to be 

among the most complex and resource-intensive matters 

handled by Enforcement staff. During FY 2005, the Commission’s Enforcement program’s efforts in this program

area are reflected in its handling of alleged misconduct in 

the feeder cattle and energy markets

Potential Cattle Market Misconduct - CFTC v. 

DeLay, et al., No. 05C5619 (N.D.Ill. filed Sep

2005). On September 29, 2005, the Commission filed 

action charging Todd J. Delay, a futures broker located in

Columbus, Ohio, with engaging in a scheme to manipulate the price of the October 2003 Feeder Cattle futures 

contract traded at the CME. The futures contracts at issue

involve “feeder cattle” as defined in the CME contract, 

which are young steers that are sent to feedlots for 

finishing into “fed” or “fat” cattle that, in turn, are sent 

to packers for slaughter. Futures contracts enable cattle

producers, meat packers, bulk beef purchasers and others 

to manage their price risk more effectively, and foster 

price discovery in the livestock industry. The Commission

action charges that Delay caused Feeder Cattle futures 

contracts to trade at an artificially high price at the end of 

October 2003 by conspiring with two Nebraska feedlot 

managers, Jack McCaffery of North Platte and John D

Lawless of Imperial, to report phony sales of feeder cattle 

to the U.S. Department of Agriculture (USDA). According to the complaint, the USDA included these sales 

its public cash market feeder cattle report, which the 

CME used to price the CME’s Feeder Cattle Index, which 

ultimately determined the final settlement price for the 

October 2003 Feeder Cattle futures contract. According to the complaint, the reports of phony sales caused

an increase of $2.85 in the final settlement price of the

CME’s October 2003 feeder cattle contract, to $106.98

per hundredweight of feeder steers. The Commission

lawsuit also alleges that, as part of the manipulation 

scheme, Delay violated CFTC-approved speculative position limits for the Feeder Cattle futures contract, in that 

Delay and other trading accounts he controlled bought 

twice as many contracts as permitted, all of which benefited from the rise in futures prices. The Commission

received invaluable assistance throughout the investigation from the CME’s Market Regulation Department

Potential Energy Market Misconduct. During FY 

2005, the Commission’s Enforcement program continued its rigorous investigation of the energy industry to 

determine whether any companies and individuals had 

engaged in any conduct violative of the CEA. In particular, the Enforcement program investigated conduct that

potentially involved false reporting of natural gas trading 

to companies that compile and publish natural gas index 

Enforcement Litigation for Goal One

1
1

prices for delivery hubs throughout the U.S. and/or attempts to manipulate and/or manipulation of natural ga

index prices

As a result of extensive investigative work in this area, 

during FY 2005, the Commission achieved significant success (see discussion below) including: filing a total of 10 

enforcement actions; achieving significant litigation results 

in one action filed in this practice area during the previous 

fiscal year; and achieving a significant victory in a related 

subpoena enforcement action

Administrative Cases Against Energy Companies 

Filed During FY 20

• In re Mirant Americas Energy Marketing LP, CFTC Docket 

No. 05-05 (CFTC filed Dec. 6, 2004). On December 

2004, the Commission simultaneously instituted and 

settled an action against Mirant Americas, a wholly 

owned subsidiary of Mirant Corporation, charging it 

with attempted energy marketing manipulation and false 

reporting in connection with its false reports of information concerning natural gas transactions to price compiling publications. The order requires Mirant Americas to

cease and desist from further violations as charged and 

imposes a $12.5 million civil monetary penalt

• In re Cinergy Marketing & Trading, LP, CFTC Docket No

05-03 (CFTC filed Nov. 16, 2004). On November 16

2004, the Commission simultaneously instituted and 

settled an action against Cinergy Marketing & Trading, 

LP (Cinergy) charging it with false reporting of trade 

information concerning natural gas transactions to two 

price compiling publications. The order requires Cinergy

to cease and desist from further violations as charged and 

imposes a civil monetary penalty of $3 million

• In re BP Energy Co., CFTC Docket No. 05-02 (CFTC file

Nov. 4, 2004). On November 4, 2004, the Commissio

simultaneously instituted and settled an action against 

BP Energy Company charging it with illegal wash sales 

involving electricity contracts and the reporting of nonbona fide prices. The order requires BP Energy Company

to cease and desist from further violations as charged and 

imposes a $100,000 civil monetary penalty

Previously Filed Administrative Case Resulting in Sanctions During FY 2005 - CFTC v. American Electric Powe

Company and AEP Energy Services, Inc., No. 2:03-cv-891, Final Judgment and Consent Order (S.D.Ohio filed Ja

2005). On January 26, 2005, the Commission settled a

action brought on September 30, 2003, against American 

Electric Power Company, Inc. (AEP) and AEP Energy Services, Inc. (AEPES), a subsidiary of AEP. The Final Judgme

and Consent Order requires the defendants to pay a $30 

million civil monetary penalty in settlement of charges that 

defendants falsely reported natural gas trades and attempted to manipulate natural gas prices. In addition, in related

actions, AEPES agreed to pay an additional $30 million to 

the DOJ to avoid federal criminal prosecution, and $21 million to the Federal Energy Regulatory Commission

Individual Energy Trader Enforcement Actions.

During FY 2005, the Commission filed seven enforcement 

actions charging a total of 16 individual energy traders 

and charging them with false reporting and attempted 

manipulation. All the individual defendants are or were

natural gas traders working for various energy companies, which are identified below (and most of which were 

previously sued by the Commission). The traders are

charged with submitting reports to various natural gas 

price compilers, including Gas Daily, Inside FERC, Natural 

Gas Intelligence, Btu Daily and Natural Gas Week, that 

contained false information such as fictitious trades or the 

alteration of price or volume for actual executed trades, all 

in an attempt to manipulate prices

• CFTC v. Whitney, No. H-05-333 (S.D.Tex. filed Feb

2005). On February 1, 2005, the Commission filed an

action charging that Michael Whitney, formerly an energy 

trader with Duke Energy Trading and Marketing, LLC, 

submitted or caused to be submitted false or misleading or knowingly inaccurate price and volume information to Gas Daily and Enerdata, Ltd. concerning natural

gas transactions he executed on behalf of Duke Energy 

between June 2001 and approximately August 2002. As

alleged, Whitney submitted the false trade information 

in an attempt to manipulate the price of natural gas in 

interstate commerce

A P P E N D I C E S
• CFTC v. Bradley, et al., No. 05CV62-CVE-FHM (N.D.

filed Feb. 1, 2005). On February 1, 2005, the Commission filed an action charging that, between January 200

and October 2002, Jeffrey A. Bradley, formerly the manager of marketing for CMS Field Services, Inc., knowingl

submitted false, misleading or knowingly inaccurate 

transaction information regarding hundreds of natural 

gas transactions to multiple natural gas reporting firms, 

including but not limited to Gas Daily, Btu Daily, Natural 

Gas Intelligence and Natural Gas Week. The action alleges that Bradley did this by reporting fictitious trades as

if they were bona fide transactions, by altering the prices 

and volumes for actual trades, or by reporting non-fixed 

price trades as if they were fixed price trades. On at least

one occasion, Robert L. Martin, formerly the director of

gas supply for the same company, allegedly conspired 

and coordinated with Bradley, and caused reports to be 

submitted to the same natural gas reporting firms

• CFTC v. Atha, et al., No. 1:05-CV-0293 (N.D.Ga. file

1, 2005). On February 1, 2005, the Commission filed

an action charging Paul Atha, Christopher McDonald, 

and Texas resident Michael Whalen, all formerly Mirant 

Americas Energy Marketing, LP, energy traders, with false 

reporting and attempted manipulation of the natural gas 

markets between January 2000 and late 2000 or early 

2001. As charged, Whalen departed Mirant in May 2000

and his alleged violations occurred during his subsequent 

employment with Cinergy Corporation in Texas. The

complaint alleges a series of revealing telephone calls 

between the Mirant traders and Whalen wherein they 

conspire about how they should report to Inside FERC 

to benefit their positions and discuss how to make their 

reports believable

• CFTC v. Johnson, et al., No. H-05-0332 (S.D.Tex. filed

1, 2005). On February 1, 2005, the Commission filed an

action charging Denette Johnson, Courtney Cubbison 

Moore, Robert Harp, Anthony Dizona, John Tracy, and 

Kelly Dyer with knowingly delivering dozens of reports 

containing knowingly inaccurate fixed-price, physical, 

baseload trade information for at least nine locations in 

the Western United States between October 2001 and 

June 2002. The complaint also alleges that defendants

attempted to manipulate the price of natural gas in interstate commerce by reporting biased information to price 

reporting companies. Specifically, the complaint alleges

that defendants regularly circulated an e-mail with directions to the traders to report prices in such a way that 

it would benefit their positions. The complaint charges

that all these activities occurred while defendants were 

employed by the energy company Shell Trading Gas and 

Power Company in providing services for Coral Energy 

Resources, L.

• CFTC v. Reed, et al., No. 05-D-178 (D.Colo. filed Feb.

2005). On February 1, 2005, the Commission filed an

action charging that, between May 2000 and October 

2002, Matthew Reed, Darrell Danyluk and Shawn 

McLaughlin engaged in false reporting and attempted 

manipulation while employed by Enserco Energy Services. McLaughlin engaged in this conduct while acting as

President of Enserco. The complaint further alleges that

Reed continued the false reporting and attempted manipulation scheme while employed by Concord Energy, 

LLC, which is also charged with liability for his acts. As

alleged, while at Enserco, with McLaughlin’s knowledge and consent, Reed, located in Enserco’s Colorado 

office, and Danyluk, located in Enserco’s Calgary office, 

coordinated on an almost daily basis how they wanted 

to report fictitious trades to numerous reporting firms, 

including Gas Daily and Natural Gas Intelligence, to 

benefit trading positions they held

• CFTC v. Richmond, No. 05-M-668 (D.Colo. filed Apr

12, 2005). On April 12, 2005, the Commission filed an

action against Andrew Richmond charging false reporting and attempted manipulation of the price of natural 

gas. Specifically, the complaint alleges that, between

approximately April 2000 and February 2001, while he 

was the director of marketing at Western, Richmond 

pressured his subordinates to submit false or misleading or knowingly inaccurate price and volume information to Gas Daily in an attempt to manipulate the price 

of natural gas

• CFTC v. Foley, No. 2:05 cv 849 (S.D.Ohio filed Sept. 

2005). On September 14, 2005, the Commission filed

an action charging that between November 2000 and 

1
1

September 2002, Joseph P. Foley, a former natural gas

head trader at AEPES, engaged in attempted manipulation and false reporting of natural gas prices. Foley is alleged to have directed those he supervised to submit false

reports of natural gas trading, including false prices and 

volumes, to index reporting firms that compile energy 

price surveys or indices (indices), such as Platts. According to the complaint, price and volume information is

used by Platts and others in calculating indexes of natural 

gas prices for various hubs throughout the U.S. The complaint alleges that Foley knowingly directed the deliver

of false information to firms such as Platts in an attempt 

to skew those indexes for his and his company’s financial 

benefit. According to the complaint, Foley knowingly

directed those he supervised to deliver thousands of 

purported natural gas trades to the energy price indexes

The complaint alleges that, of those trades, a substantial 

number were false or misleading or knowingly inaccurate. Foley went so far as to direct the creation of a

computer spreadsheet, titled “IFERC Bogus”, to record 

certain false trade information Foley wanted submitted, 

according to the complaint

Subpoena Enforcement Action - CFTC v. The 

McGraw-Hill Companies, Inc., No. 1:05MS

(D.D.C. filed June 16, 2005). On June 16, 2005,

Commission filed an application in the U.S. Distric

Court for the District of Columbia seeking to enforce a 

subpoena it served on McGraw-Hill in April 2005. The

subpoena, issued as part of the Commission’s on-going 

investigations of reporting by energy corporations, seeks 

information regarding the reporting of natural gas trading records to Platts, an entity owned by McGraw-Hill

The information is being sought in connection with a 

non-public investigation. The Commission subpoena

also seeks McGraw-Hill’s documents concerning Platts’ 

use of that data in the indices that Platts calculates and 

disseminates. Following oral argument on September

27th, the Honorable Judge Lamberth, on October 4th, 

granted the Commission’s motion and ordered McGraw-Hill to provide the requested documents. McGraw-Hill subsequently moved for reconsideration, and

the matter is still pending

A P P E N D I C E S
Litigation by Goal Two

Goal Two: Protect market users and the public.

Commodity Pools (including “Hedge Funds”), 

Commodity Pool Operators, and Commodity Trading 

Advisors. Investors continue to fall prey to unscrupulous 

CPOs and CTAs, including CPOs and CTAs operating selfdescribed hedge funds. In many of these cases, the defendants have pre-existing business, social, religious, or ethnic

ties to the individual investors. These personal relationships

enable the defendants to gain the investors’ trust and then 

lull them into a false sense of confidence. The Commission

addresses this violative conduct through a combination 

of enforcement actions and investor education. Some of

the scams are operated as “Ponzi schemes” in which early 

investors are paid purported “profits” with newer investor 

funds. The schemes generally involve fraud in soliciting the

general public to invest in the pools operated by the CPO 

or CTA, fraudulent statements concerning the results being 

achieved by the pool for its investors, and/or outright misappropriation of pool funds by the CPO. During FY 2005,

the Commission filed nine enforcement actions in this 

program area, and also achieved significant litigation results 

in six actions filed in this practice area during previous fiscal 

years. Examples of these successes are provided below

• CFTC v. Eustace, et al., No. 05CV2973 (E.D.Pa. filed J

21, 2005). On June 21, 2005, the Commission filed an

action against Philadelphia Alternative Asset Management Co., LLC (PAAM), a registered commodity pool

operator, and Paul M. Eustace, a registered associated

person and president of PAAM, alleging fraudulent 

solicitation and false reporting involving a hedge fund 

and commodity pools. PAAM is alleged to have accepted over $230 million from participants and started

sustaining massive losses that mounted to over $140 

million by May 2005. On the same day that the complaint was filed, the Commission obtained a statutory

restraining order freezing defendants’ assets, preventing 

the destruction of books and records, and appointing a 

receiver to take control of defendants’ assets

• CFTC v. Bayou Management, LLC, No. 05 CIV. 837

(S.D.N.Y. filed Sept. 29, 2005). On September 29, 

the Commission filed an action alleging misappropriation and fraud involving Connecticut hedge fund manager Bayou Management, LLC (Bayou Management), 

its principals, Samuel Israel III and Daniel E. Marino,

and Richmond Fairfield Associates, Certified Public 

Accountants PLLC (Richmond Fairfield). The complaint

alleges that the defendants misappropriated customer 

funds, acquired funds through false pretenses, engaged 

in unauthorized trading, and misrepresented material 

facts to actual and prospective investors, including the 

rates of return the hedge funds earned, the value of assets 

under management, and the existence and identity of the 

Enforcement Litigation for Goal Two

1
1

accounting firms that had purportedly audited the hedge 

funds. On the same date that the action was filed, the

defendants consented to a preliminary injunction that 

included an asset freeze. Also on the same date, Israel and

Marino, based upon the same conduct, pleaded guilty to 

criminal charges brought by the U.S. Attorney’s Office fo

the Southern District of New York, White Plains Division

The Commission coordinated its investigation with the 

U.S. Attorney’s Office and the S

• CFTC v. Princeton Global Management, Ltd., et al., No

99CIV.9669 (S.D.N.Y. filed Sept. 18, 1999). On

14, 2005, the Commission and SEC announced that a 

court-appointed receiver in the pending actions against 

Princeton Economics International, Ltd. and Princeton

Global Management, Ltd. (the Princeton Companies)

and Martin Armstrong was in the process of distributing 

over $50 million as part of an interim distribution to 

former customers of the Princeton Companies. The distribution stems from actions filed by the Commission

and SEC alleging that Armstrong and his companies 

violated the Commodity Exchange Act and Federal securities laws, respectively, by engaging in unauthorized 

commodity futures and options trading and then hiding 

their trading losses of several hundred million dollars 

by, among other things, the issuance of false net asset 

value letters. Separately, Mr. Armstrong has been hel

in civil contempt of a district court order for failing to 

produce more than $14 million in assets that the Commission and SEC contend were proceeds of the fraud

Other FY 2005 Commission Enforcement Action

Alleging Illegal Activity Involving Commodity Pools 

(including “Hedge Funds”), Commodity Pool Operators, and Commodity Trading Advisors. During FY 

2005, the Commission also filed the following actions 

in this program area: CFTC v. Schotz, et al., No. 04-08889

SJO (SSx) (C.D.Cal. filed Oct. 27, 2004); CFTC v. Re

Capital Management, et al., No. 04 CV 09029 (S.D

filed Nov. 16, 2004); CFTC v. Heffernan, No. 4 04 2330

25 (D.S.C. filed Dec. 16, 2004); In re Allen, CFTC Doc

No. 05-08 (CFTC filed April 6, 2005) (simultaneous file

and settle; commodity pool operator/commodity trading 

advisor fraud; sanctions including cease and desist order, 

five-year personal trading ban and permanent ban from 

trading for others); CFTC v. Steele, No. 05-3130 (N.D.

filed May 25, 2005); CFTC v. Beasley, et al., No. C 05

02142 (N.D.Cal. filed May 25, 2005); CFTC v. Eustace, 

al., No. 05CV2973 (E.D.Pa. filed June 21, 2005); C

v. Pippin, No. CV 05 4120 (E.D.N.Y. filed Aug. 29, 2

and CFTC v. Linuxor Asset Mgt., et al., No. 005 CV 8091

(S.D.N.Y. filed Sept. 19, 

Commodity Trading Advisors, Managed Accounts, 

and Trading Systems. During FY 2005, the Commission filed eight enforcement actions in this program area 

and achieved significant litigation results in four actions 

filed in this practice area during previous fiscal years. An

example of the Commission’s enforcement success in this 

practice area appears below:

• CFTC v. Charles, No. 2:05-cv-02144 (C.D.Ill. filed J

23, 2005). On June 23, 2005, the Commission filed

an action against Cameron Charles alleging that he 

defrauded Watseka Farmers Grain Co. Cooperative

(Watseka) by engaging in unauthorized and illegal 

speculative trading. Specifically, according to the complaint, Charles, a Watseka manager, engaged in unauthorized and illegal speculative trades for Watseka in the

soybean market between January and May 2004. The

complaint further alleges that Charles concealed from 

and failed to disclose these trades to Watseka’s board 

of directors and the Illinois Department of Agriculture 

by making misrepresentations and falsifying Watseka’s 

records to make it appear that Watseka was not at risk in 

the futures market. The Commission complaint further

alleges that in mid-May 2004, a sharp decline in the 

soybean futures market caused Watseka to receive margin calls on the speculative long futures positions that 

Charles had created. As alleged, Watseka could not meet

the margin calls, thus forcing Watseka into liquidation

According to the complaint, the liquidation resulted in 

a loss of at least $1 million to shareholders of Watseka, 

who were mainly local farmers. The complaint also

alleges that Charles solicited and accepted orders for 

futures transactions from local farmers that Charles 

executed through Watseka’s futures account. In so doing, the complaint alleges, Charles acted illegally as an

associated person of a futures commission merchant 

without proper registration with the Commission. The

A P P E N D I C E S
Commission’s investigation was done in coordination 

with the Illinois Department of Agriculture and the Illinois Attorney General’s office

Other FY 2005 Commission Enforcement Actions in This Program Area. The Commission’s FY 200

enforcement actions in this program area also included 

the following: CFTC v. Jade Trader, et al., No. CV04-8213

(C.D.Cal. filed Oct. 1, 2004); CFTC v. Longhorn Financ

Advisors, LLC, et al., No. 1:04CV00911 (M.D.N.C. file

5, 2005); In re Berg, et al., CFTC Docket No. 05-07 (CFTC

filed Jan. 18, 2005) (simultaneous file and settle; commodity trading advisor distribution of inaccurate and outdated disclosure document; sanctions including cease and

desist order and $10,000 civil monetary penalty); CFTC v. 

Gemancer, Inc., et al., No. CV05 2660 (C.D.Cal. filed April

12, 2005); CFTC v. Smithers, et al., No. 05-80592 (S.D.

filed June 29, 2005); CFTC v. Lovett, No. CV05-5074 GHK

(MANx) (C.D.Cal. filed July 12, 2005); CFTC v. Poole,

1:05CV00859 (M.D.N.C. filed Sept. 30, 

Futures Commission Merchants, Introducing 

Brokers and Their Associated Persons. The Commission 

diligently redresses misappropriation and other violative 

conduct by futures commission merchants, introducing 

brokers, and their associated persons. During FY 2005, the

Commission filed 11 enforcement actions in this practice 

area, and also achieved significant litigation results in 

one action filed in this practice area during previous fiscal 

years. An example of the Commission’s enforcement success in this practice area appears below

• CFTC, et al. v. Cromwell Financial Services, Inc., et al., 

No. 1:05-cv-00210-JD (D.N.H. filed June 12, 2005)

June 12, 2005, the Commission, along with the State 

of New Hampshire, filed an action against registered 

introducing broker Cromwell Financial Services, Inc

(Cromwell), its founder and owner (Phillip Tuccelli), and several of its registered associated persons 

(Michael Staryk, Dennis Gee, Richard Peluchette, and 

Richard Astern) alleging fraudulent solicitation to trade 

commodity futures contracts and failure to supervise

Specifically, the complaint alleges that, from at least 

January 1, 2002 through December 2003, Cromwell 

fraudulently solicited at least 900 customers who collectively incurred approximately $19 million in trading 

losses. The day after the complaint was filed, the court

issued a statutory restraining order, which CFTC representatives executed at four locations in Florida with the 

assistance of Florida law enforcement

Other FY 2005 Commission Enforcement Actions in This Program Area. The Commission’s FY 200

enforcement actions in this program area also included 

the following: CFTC v. Brickell Key Financial, LLC, et al., 

No. 04-22549 (S.D.Fla. filed Oct. 8, 2004); CFTC v. Un

Investors Group, Inc., et al., No. 05-80002 (S.D.Fla. fi

Jan. 3, 2005); CFTC v. Lanier, No. 5:05-CV-516 (W.D.

filed May 10, 2005); In re Mueller, CFTC Docket No. 05-09

(CFTC filed June 3, 2005) (simultaneous file and settle; associated person unauthorized trading; sanctions including 

case and desist order, permanent trading ban and $30,000 

civil monetary penalty); CFTC v. Commodity Investment 

Group, Inc., et al., No. 05 CV 5741 (S.D.N.Y. filed June

2005); In re Lochmann, CFTC Docket No. 05-12 (CFTC

filed July 6, 2005) (unauthorized trading by introducing 

broker associated person); CFTC v. Musorofiti, et al., No

CV 05 3917 (E.D.N.Y. filed Aug. 16, 2005); CFTC v. American Derivatives Corp., et al., No. 1 05-CV 2492

filed Sept. 26, 2005); and CFTC v. Int’l Currency Exchange,

Inc., et al., No. 05 CV 8446 (S.D.N.Y. filed Sept. 30,

Foreign Currency Cases. During FY 2005, the Commission continued to battle fraud perpetrated on the retail 

public by firms offering trading in off-exchange forex. While

much foreign currency trading is legitimate, numerous 

companies have fraudulently solicited and traded customer 

foreign currency futures or option trading accounts. Under

the CFMA, it is unlawful to offer off-exchange foreign currency futures or option contracts to retail customers unless 

the counterparty to the contract is a regulated financial 

entity enumerated in the CFMA, such as a FCM or financial 

institution. In addition, even if the counterparty is appropriate, the Commission has jurisdiction to investigate and

prosecute foreign currency futures or options fraud. Forex

trading scams often attract customers through advertisements in local newspapers, radio promotions, or online

These advertisements often tout purportedly high-return, 

low-risk investment opportunities in foreign currencies. The

Commission has brought enforcement actions against both 

registered firms (for fraud and for other CEA violations, 

1
1

such as failure to maintain net capital requirements) and 

unregistered “bucket shops.”

During FY 2005, the Commission filed 17 enforcement actions against firms and individuals selling illegal 

foreign currency futures and option contracts, bringing the 

total of such actions to 79 since enactment of the CFMA 

in December 2000. During FY 2005, the Commission also

achieved significant litigation results in eight actions filed 

in this practice area during previous fiscal years. Since the

enactment of the CFMA, the Commission has obtained in 

its 79 forex enforcement actions approximate monetary 

sanctions of $170 million in civil monetary penalties and 

$115 million in restitution

Among the Enforcement program’s successes in this 

area during FY 2005 were the followin

• CFTC v. White Pine Trust Corp., et al., No. 04-CV-209

(S.D.Cal. filed Oct. 20, 2004). On October 20, 2004,

Commission filed an action against White Pine Trust 

Corporation (White Pine) and Richard Matthews charging them with fraudulent solicitation, misappropriation of customer funds, and illegally offering foreign 

currency options. According to the complaint, since at

least February 2003, defendants fraudulently solicited 

at least $650,000 from customers. As alleged, defendants also misappropriated funds to pay for personal

and business expenses. Moreover, as asserted in papers

filed by the Commission, shortly after receiving the 

subpoena to testify before the Commission, $1.4 million was withdrawn in cash from an operating accoun

The complaint alleges that defendants control multiple 

corporate accounts into which defendants have deposited over $30 million and upon information and belief, 

those funds may consist in part, or entirely, of customer 

funds obtained from hundreds of customers. According to papers filed by the Commission, defendants

paid millions out of these accounts for extravagant 

personal and purported business expenses, including 

NFL football tickets, nightclubs, and Saks Fifth Avenue 

purchases. According to an October 28, 2004 report

filed by the court-appointed receiver, the receiver has 

control over real property exceeding $3 million in value, 

and also has possession of a yacht owned by White 

Pine, which was purchased for $390,000 in cash in 

2003. The receiver’s report also states it is investigating

the possible diversion of substantial funds to Mexico 

and Belize. On October 28, 2004, the court entered a

preliminary injunction against White Pine enjoining it 

from further violations as charged, and also confirmed 

a restraining order entered on October 21 against White 

Pine and Richard Matthews that freezes defendants’ assets and appoints a temporary receiver

• CFTC v. World-Wide Currency Services Corp., et al., No

03-80032-CIV-HURLEY, Order Adopting Magistrate 

Judge’s Report & Recommendation (S.D.Fla. enter

Jan. 4, 2005). On January 4, 2005, the court entered a

order assessing a total of $6,141,748 in civil monetary 

penalties against defendants World-Wide Currency 

Services Corp., its president (Genady Spivack) and its

vice-president Ellison Kent Morris. This Commission

filed this enforcement action on January 13, 2003, and 

on August 5, 2004, the court granted the Commission’s 

summary judgment motion finding that the defendants 

fraudulently sold foreign currency futures contracts to 

customers under the guise of conducting spot currency 

transactions. Also, according to the summary judgment

order, defendants solicited customers using telemarketing tactics and claims urging customers to act quickly to 

take advantage of current market conditions and make 

substantial profits, with minimal risk. One customer

was promised a monthly return of one to two percent, 

another was told to expect an annual profit of 20 percent, still others were promised anywhere from doubling their money to earning as much as five times their 

investment in just a few months, according to the order

The summary judgment order required repayment to 

defrauded customers of $1,092,880

• CFTC v. Sonoma Trading Corp., et al., No. 05-60342

(S.D.Fla. filed March 9, 2005). On March 9, 2005, 

Commission filed an action against Sonoma Trading 

Corporation (Sonoma) and its owner, William David 

Seigler, Jr., charging that they wrongfully solicited

and sold foreign currency options. The Commission

complaint alleges that since December 2002, Sonoma and Seigler, through a Web site operated in the 

name of Sonoma, solicited retail customers to trade 

A P P E N D I C E S
foreign currency options contracts, touting Sonoma 

as “The Premier Foreign Exchange Options Dealer in 

the Americas.” As further alleged, in connection with

these solicitations, the defendants instructed customers to wire transfer funds to a U.S.-based bank fo

routing to a Sonoma bank account located in San 

Jose, Costa Rica. To conduct these activities lawfully,

the complaint charges that Sonoma and Siegler either 

were required to execute the options transactions on a 

contract market or a foreign board, or were required to 

register with the Commission as a futures commission 

merchant. The complaint alleges that they did neithe

On the same day the complaint was filed, court issued 

an order freezing the defendants’ assets and preventing 

the destruction of their books and records

• CFTC v. Emerald Worldwide Holdings, Inc., et al., No

CV03-8339 AHM (C.D.Cal. entered April 19, 20

April 19, 2005, the court issued a default order requiring defendant City Trust and Investment Co. Ltd. (CTI

of Tokyo, Japan, to repay defrauded customers more 

than $3.2 million, and to pay a civil monetary penalty of $8.2 million, in connection with a forex sca

operated by CTI and Emerald Worldwide Holdings, 

Inc. (Emerald). The order stems from an amende

complaint filed by the Commission on May 10, 2004, 

alleging that defendants CTI and Emerald Worldwide 

Holdings, Inc. (Emerald) operated together in fraudulently soliciting customers in Japan and China to invest

more than $5 million to trade illegal off-exchange 

foreign currency futures contracts in the United States

Specifically, the Commission’s amended complaint 

alleged that Emerald’s promotional materials, which 

were disseminated by employees of CTI, contained false 

statements regarding Emerald’s registration status and 

affiliation with entities that were legitimately registered 

with the Commission. The complaint also alleged that,

rather than trade the customers’ funds as promised, 

Emerald and CTI transferred the funds to various bank 

accounts in the United States, Japan, China, and Hong 

Kong in the names of Emerald, CTI, and others. Additionally, on March 15, 2005, Judge Matz issued an order

requiring relief defendant ACE Emerald W. Holding,

Inc. (ACE Emerald), of Las Vegas, Nevada, to disgorge

its ill-gotten gains. ACE Emerald, as a relief defendant,

was charged with receiving customer funds to which it 

was not entitled, but was not charged with participation 

in any violation of law. The lawsuit is still pending as to

defendants Emerald, Jian Zhuang and Hao Jan Lu, and 

relief defendants ACE Capital Advisory Group Inc., Lynnwood Jen, and Esther Pranol

• CFTC v. DBS Capital, Inc., et al., No. 03 CFTC v. DBS

Capital, Inc., et al., No. 03-1379 VRW, Consent Order

Of Permanent Injunction (N.D.Cal. entered June 1

2005). On June 17, 2005, the court entered a consent

order of permanent injunction and other equitable 

relief against defendants DBS Capital, Inc., and Douglas

Stevens, the founder and president of DBS. The order

stems from an enforcement action filed on March 31, 

2003. Without admitting or denying the findings, the

defendants consented to entry of the order that found 

the defendants have been offering and selling illegal, 

off-exchange futures contracts to the retail public; and 

they fraudulently solicited approximately $14 million 

from approximately 200 retail customers. In addition to

being permanently enjoined from further violations as 

charged, the defendants were ordered to make restitution to customers of $11,505,025, plus post-judgment 

interest, and to pay a $3,191,597 civil monetary penalty

• CFTC v. World Market Advisors, Inc., et al., No. 05-60928

CIV-ALTONGA/TURNOFF (S.D.Fla. filed July 21, 20

On July 21, 2005, the Commission filed an action 

against five Florida foreign currency firms, World Market 

Advisors, Inc. (WMA), U.S. Capital Management, 

(U.S. Capital), United Equity Group, Inc. (Unit

Equity), Liberty One Advisors, LLC (Liberty One), Lighthouse Capital Management, LLC (Lighthouse), and five 

individuals, Jason T. Dean of Pompano Beach, Florida,

Steven D. Knowles and Paul F. Plunkett of Deerfiel

Beach, Florida, Joseph D. Valko of Coconut Creek,

Florida and Jeffrey Paul Jedlicki of Boca Raton, Florida, 

charging that defendants defrauded customers they 

solicited to trade foreign currency options contracts

The complaint also charges three Florida-based foreign 

currency dealers, Universal Options, Inc. (Universal

Options), Qualified Leverage Providers, Inc. (QLP)

and Safeguard FX, LLC (Safeguard), with liability as 

1
principals for the acts of the five foreign currency firms

Specifically, the Commission’s complaint alleges that 

since October 2002, WMA and a series of short-lived 

affiliates and successors, including the other corporate 

defendants, through their brokers, including Jedlicki, 

fraudulently solicited customers over the telephone 

throughout the U.S., Canada, and the U.K., using highpressure “boiler room” sales tactics, to open accounts

trade foreign currency options contracts. The complaint

further alleges that defendants solicited at least 924 

customers, who collectively invested at least $17.1

million to trade foreign currency options contracts

The customers paid defendants at least $8.6 million in

commissions, and lost approximately $13.6 million

in their trading accounts, according to the complaint

Over 96 percent of the customers lost money, and most 

customers lost all of their investments. On the day the

action was filed, the court entered a restraining order 

that, among other things, freezes the assets of all defendants except Universal Options, QLP and Safeguard

The Commission received cooperation in their investigation and prosecution of this matter from the Florida 

Attorney General’s Office of Statewide Prosecution, the 

Florida Office of Agricultural Law Enforcement, the 

Office of Financial Regulation and the Broward County 

Sheriff’s Office, among others. The Commission also received assistance from the National Futures Associatio

Other FY 2005 Commission Enforcement Actions Alleging Illegal Forex Activity. During FY 2005, i

addition to one enforcement action it filed under seal, 

the Commission also filed the following actions in this 

program area: CFTC v. Foreign Fund, et al., No. 0 04 098

(M.D.Ten. filed Oct. 5, 2004); In re Bentley Rothchild Gro

Inc., et al., CFTC Docket No. 05-04 (CFTC filed Nov. 23

2004) (simultaneous file and settle; forex fraud; sanctions including cease and desist order and $10,000 civil 

monetary penalty); CFTC v. Richmond Global Associates, 

LLC, et al., No. 05 CV 2181 (S.D.N.Y. filed Feb. 16, 2

CFTC v. Premium Income Corp., et al., NO. 3-05 CV 0416M

(N.D.Tex. filed March 2, 2005); CFTC v. Mercury Partner

Inc., et al., No. 05-60328 (S.D.Fla. field Mar. 7, 2

CFTC v. G7 Advisory Services, LLC, et al., No. 05-80313

(S.D.Fla. filed April 12, 2005); CFTC v. Presidential FX, Inc

et al., No. 1:05CV492 (E.D.Va. filed April 29, 2005); C

v. Webman, et al., No. 05 CV 4819 (S.D.N.Y. filed May

2005); CFTC v. Windsor Forex Trading Corp., et al., No. CV

05 2547 (E.D.N.Y. filed May 26, 2005); CFTC v. Natio

Investment Consultants, et al., No. C 05 2641 (N.D.Cal. fi

June 29, 2005); CFTC v. de Wet, No. 05 CV 8401 (S.D.

filed Sept. 30, 2005); CFTC v. Efrosman, et al., No. 05 C

8422 (S.D.N.Y. filed Sept. 30, 2005) (violation of p

Commission order in addition to forex fraud); and CFTC 

v. Yanev, No. C2 05 900 (S.D.Ohio filed Sept. 29, 2

Precious Metals And Other Illegal Off-Exchange 

Cases. During FY 2005, the Commission’s Enforcement 

program prosecuted the following two actions that alleged 

non-forex, illegal off-exchange trading

• CFTC v. E-Metal Merchants, Inc., et al., No. 05-21574

(S.D.Fla. filed June 13, 2005). On June 13, 2005, 

Commission filed an action against E-Metal Merchants, 

Inc., and two of its corporate officers, Benji Dayan and

Andrew Stern, both of Miami, Florida, charging them 

with purchasing and selling illegal, off-exchange metals options. Specifically, the Commission’s complaint

charges that, since at least May 2004, E-Metal Merchants 

accepted over $6.9 million from more than 200 customers for the purpose of engaging in the purchase and sale

of illegal off-exchange metals option contracts. According to the complaint, E-Metal Merchants transferred

more than $5.4 million from its customers’ account

to the firm’s operating account, $575,000 to the firm’s 

off-shore account in New Zealand, and $509,000 to 

Universal Financial Holding Company, a firm owned 

by the secretary of E-Metal Merchants, Andrew Stern. As

further alleged, that firm paid the president of E-Metal 

Merchants, Benji Dayan, and the secretary, Stern, over 

$1 million from customer funds. Dayan and Stern are

controlling persons of E-Metal Merchants and, therefore, are liable for the firm’s violations of the CEA, the 

complaint alleges. On the same day the action was filed,

the court entered a restraining order that, among other 

things, freezes defendants assets

A P P E N D I C E S
• In re Trade Exchange Network, CFTC Docket No. 05-14

(CFTC filed Sept. 29, 2005). On September 29, 2005

the Commission simultaneously commenced and settled an action against Trade Exchange Network Limited 

(TEN), a limited liability company based in Dublin, 

Ireland, alleging that TEN solicited and accepted orders 

from U.S. residents for commodity option contracts tha

were not excepted or exempted from the Commission’s 

ban on options. TEN owns and operates an Internetbased trading platform that facilitates trading through

its Web sites www.Tradesports.com, www.Intrade.com, 

and www.TradebetX.com. According to the findings in

the order, TEN actively solicited U.S. residents to trad

such contracts by retaining an individual in the U.

to market TEN’s products throughout the country, and 

TEN ultimately developed a U.S. customer base that wa

roughly 33 to 40 percent of its total customer base. The

order further finds that the commodity option contracts offered on TEN’s Web sites were not excepted or 

exempted from the Commission’s regulation banning 

options trading, and therefore violated the CEA. TEN’s

high level of cooperation during the underlying investigation resulted in a reduction of the civil monetary 

penalty to $150,000, which TEN agreed to pay. The

order also calls for TEN to cease and desist from further 

violations of the CEA and comply with specific undertakings. In consenting to the entry of the Commission’s

order, TEN neither admitted nor denied the findings 

made in the order
Litigation by Goal Three

Goal Three: Ensure market integrity to foster 

open, competitive, and financially sound markets.

Trade Practice. The legislative history of the CEA notes 

that one of the fundamental purposes of the Act is to ensure 

fair practices and honest dealing in the futures market and 

to control those forms of speculative activity that demoralize the market to the detriment of producers, consumers, 

and the markets. Consistent with Congress’ mandate, the

Commission brings trade practice cases to address a variety 

of unfair, abusive, or deceptive ploys by traders to avoid 

exposing their orders to market risk. Such actions can create

non-competitive prices in the marketplace and have the 

potential to harm public customers, producers, and others

Improper trade practices include a variety of activities, including trading done in violation of exchange rules, such as 

trading ahead of a customer order, wash trading, accommodation trading, and fictitious trading. During FY 2005, the

Commission filed six enforcement actions in this program 

area, and also achieved significant litigation results in one 

action filed in this practice area during previous fiscal years

An example of the Commission’s success in this program 

area appears below:

United States v. Helffrich. With the assistance of the 

Commission’s Enforcement program, the U.S. Attorne

for the Northern District of Illinois obtained a criminal 

conviction of Stuart Michael Helffrich for wire fraud and 

fraudulent conversion of his customers’ commodity futures 

positions. Helffrich, while a registered floor broker at the

CBOT, transferred winning trades from his customers’ accounts into his own trading account and “parked” his own 

losing trades in their accounts, all to cover up mounting 

losses and to inflate the value of his own personal trading 

accounts. The scheme went on for approximately six weeks

until it was discovered. Helffrich caused trading losses of

over $866,000 to two large grain dealers, and to Helffrich’s 

employer, who ultimately repaid the customers. In addition, the scheme caused the customers to pay additional

margin and exposed them to additional market risk. On

May 10, 2005, U.S. District Court for the Northern Distric

of Illinois issued the guilty verdict and on September 1, 

2005, Helffrich was sentenced to 41 months’ imprisonment, with 3 years’ supervised release at the conclusion 

of the period of incarceration. In addition, Helffrich was

ordered to repay his employer more than $800,000. This

criminal case was the result of a Division referral after the 

Chicago Board of Trade revoked Helffrich‘s membership 

and the Commission revoked his registration.In the Matter

of Stuart Michael Helffrich, SD 04-08 (Sept. 3, 2004

Other FY 2005 Enforcement Program Actions Alleging Trade Practice Violations. During FY 2005, the Commission’s Enforcement program filed the following trad

practice enforcement actions: In re Hucko, CFTC Docket 

Enforcement Litigation for Goal 3

A P P E N D I C E S
No. 05-01 (CFTC filed Oct. 26, 2004) (simultaneous fil

and settle; fraudulent trade allocation; sanctions including 

cease and desist order, permanent trading ban and $50,000 

civil monetary penalty); In re Hencorp Becstone Futures LC, 

et al., CFTC Docket NO. 05-06 (CFTC filed Dec. 22, 2004

(simultaneous file and settle; wash sales and reporting of 

non-bona fide prices involving CSCE coffee futures; sanctions including cease and desist order and $100,000 civil 

monetary penalty); In re Maddox, CFTC Docket No. 05-10

(CFTC filed June 9, 2005)(simultaneous file and settle; 

fraudulent trade allocation; sanctions including $25,000 

civil monetary penalty, $31,000 restitution and one year 

personal trading ban); In re Armajaro Trading Ltd., et al., 

CFTC Docket No. 05-11 (CFTC filed June 21, 2005) (simultaneous file and settle; fictitious and non-competitive trading in CSCE cocoa spread cross trades; sanctions including

cease and desist order and total of $60,000 civil monetary 

penalties); and In re Credit Lyonnais Rouse Ltd., CFTC Docket 

No. 05-13 (CFTC filed Aug. 24, 2005) (simultaneous fil

and settle; fictitious and non-competitive trading in CSCE 

cocoa spread cross trades; sanctions including cease and 

desist order and $85,000 civil monetary penalty)

Financial, Supervision, Compliance and Recordkeeping. During FY 2005, the Commission filed one 

enforcement action in this program area during FY 2005, 

and also achieved significant litigation results in two 

actions filed in this practice area during previous fiscal 

years. An example of the Commission’s success in this

program area is provided below:

• In the Matter of G. Victor Johnson and Altschuler, Melvoin 

and Glasser, LLP, CFTC Docket No. 04-29 (CFTC filed

June 13, 2005). On June 13, 2005, the Commission

issued an order accepting settlements of accounting firm 

(Altschuler, Melvoin & Glasser, LLP (AMG)) and engagement partner (G. Victor Johnson) arising from audits

performed of a commodity pool that failed to detect a 

fraud perpetrated on investors by the pool’s operator

Under the terms of the settlements, Johnson and AMG 

will pay $200,000 to the defrauded pool investors, will 

repay all audit fees earned from the audit engagements 

(which will go to victims of the fraud) and will pay a civil 

monetary penalty of $150,000. Additionally, Johnson

will not participate in any audit of any commodity pool 

or Commission registrant in certain capacities until after 

December 31, 2005, and AMG will provide training in 

fraud examination and detection to staff, as well as review portions of its audit programs that were implicated 

in the alleged audit failures and report to the Commission on its review

Statutory Disqualifications. During FY 2005, the 

Commission filed five enforcement actions in this program 

area. An example of the Commission’s success in this program area is provided below

• In re McKenna, CFTC Docket No. SD 05-03 (CFTC

filed May 20, 2005). On May 20, 2005, the Commission simultaneously filed and settled an action against

Brion Scott McKenna, a former gas trader for Williams, 

a subsidiary of The Williams Companies, Inc., a publicly-traded company, revoking his registration as an

associated person for three years and ordering him to 

cooperate fully with the Commission and other Federal 

authorities in connection with this proceeding and any 

related inquiry. The Commission’s action was the result

of McKenna’s guilty plea in the U.S. District Court fo

the Northern District of California to a felony violation 

involving manipulation while employed as a natural 

gas trader at Williams. Previously, on July 29, 2003, the

Commission simultaneously filed and settled an action 

against Williams for false reporting of natural gas trading 

information, with Williams agreeing to pay a $20 million 

civil monetary penalty

Other Commission Actions Filed In This Program 

Area. During FY 2005, the Commission instituted the 

following additional statutory disqualification actions: In 

re Wnukowski, CFTC Docket No. SD-5-01 (CFTC filed De

30, 2004); In re Beacon Hill Asset Mgt. LLC, CFTC Docket 

No. SD 05-02 (CFTC filed May 3, 2005); In re Palomino

Capital Mgt., CFTC Docket No. SD 05-04 (CFTC filed July

14, 2005); and In re Kaulentis, CFTC Docket No. SD 05-05

(CFTC filed Aug. 1, 2005
THE CFTC GLOSSARY

A GUIDE TO THE LANGUAGE OF THE FUTURES INDUSTRY

http://www.cftc.gov/opa/glossary/opaglossary_a.htm

Because the acronyms of many words and phrases used throughout the futures industry are not readily available in standard references, the Commission’s Office of External Affairs compiled a glossary to assist members of the public.

This glossary is not inclusive, nor are general definitions intended to state or suggest the views of the Commission 

concerning the legal significance, or meaning of any word or term. Moreover, no definition is intended to state or suggest

the Commission’s views concerning any trading strategy or economic theory. If you cannot find the term you are looking

for or have any other comment, please email us at glossary@cftc.gov. The glossary was last revised September 200

Glossary of Acronyms

AE. . . . . . . . . . . . . . .

AEP. . . . . . . . . . . . . . . . . . .

AEPES  . . . . . . . . . . . .

ALJ. . . . . . . . . . . . .

AMG. . . . . . . . . . . . . . . . . .

AML. . . . . . . . . . . 

AWB......................

BSE. . . . . . . . . . . . . . . . .

BTEX. . . . . . . . . . . . . .

CBOT. . . . . . . . . . . .

The CFTC Glossary

A P P E N D I C E S
CBFB. . . . . . . . . . . . . . 

CCORP. . . . . . . . . . . . .

CEA. . . . . . . . . . . .

CESR. . . . . . . . . . . . . . . . . . . . . . 

CFTC. . . . . . . . . . . . . . . . . . .

CFMA. . . . . . . . . . . . . . . . . . . . . . 

CME. . . . . . . . . . . . . . 

COSRA. . . . . . . . . . . . . . . . . . . . . . . . . 

CPO.......................

CSRS. . . . . . . . . . . . . . . . 

CTA. . . . . . . . . . . . . 

CTI. . . . . . . . . . . . . . . . . . . . . 

DART. . . . . . . . . . . . . . . . . . .

DCIO. . . . . . . . . . . . . . . . . . . . . . . . . . . .

DCM. . . . . . . . . . . . 

DCO. . . . . . . . . . . . . . . . . 

DMO. . . . . . . . . . . . . . . . . . 

DOJ. . . . . . . . . . . 

DOL. . . . . . . . . . 

EHRI. . . . . . . . . . . . . . . . . . . .

ESC. . . . . . . . . . . . . .

EUREX US. . . . . . . . . . . . .

FBI. . . . . . . . . . . . . . . . 

FCM...........................

FCOM. . . . . 

FECA. . . . . . . . . . . . . . . . . .

FEGLI. . . . . . . . . . . . . . . . . . . . . . . .

FEHBP. . . . . . . . . . . . . . . . . . . . . 

FERC. . . . . . . . . . . . . . . . . . .

FERS. . . . . . . . . . . . . . . . . . .

FILAC. . . . . . . .
FIRREA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

of 1989

FISMA. . . . . . . . . . . . . . . . . . . . . . . . . . 

FMFIA. . . . . . . . . . . . . . . . . . . . . . . . . 

FTE. . . . . . . . . . .

FWC...........................

FY. . . . . . 

GAAP. . . . . . . . . . . . . . . . . . . . .

GAO. . . . . . . . . . . . . . . . .

GCC. . . . . . . . . . . . . . . 

GMAC. . . . . . . . . . . . . . . . . 

GPRA. . . . . . . . . . . . . . . . . . . . . . . .

IB. . . . . . . . . .

ICC. . . . . . . . . . . . . . . . .

IOSCO. . . . . . . . . . . . . . . . . . . . . . . . . . .

ISS. . . . . . . . . . . . . . . .

JO. . . . . . . . .

KCBT. . . . . . . . . . . . . .

LCH. . . . . . . . . . . 

MDA. . . . . . . . . . . . . . . . . . .

MGE. . . . . . . . . . . . . .

MOU. . . . . . . . . . . . . . 

MMOU. . . . . . . . . . . . . . . . . . . . .

NFA. . . . . . . . . . . . . . .

NYCC. . . . . . . . . . . . . . . 

NYMEX. . . . . . . . . . . . . . .

OCC. . . . . . . . . . . . . . . . .

OGC. . . . . . . . . . . . . . . . . . .

OIRM. . . . . . . . . . . . . . . . . . . . . . . . . 

OMB. . . . . . . . . . . . . . . . 

ONXCC. . . . . . . . . . . . . . . . 

OPM. . . . . . . . . . . . . . . .

A P P E N D I C E S
ORB. . . . . . . . . . . . . 

PAAM. . . . . . . . . . . . . . . . . . . . . . . . . 

PART. . . . . . . . . . . . . . . .

QLP. . . . . . . . . . . . . . . . . 

RIC. . . . . . . . . . . . . . . . 

RWG. . . . . . . . . . . . . .

SC4. . . . . . . . . . .

SC5. . . . . . . . . . .

SEC. . . . . . . . . . . . . . . . . .

SFE. . . . . . . . . . . . . . . . 

SFFAS. . . . . . . . . . . . . . . . . . . . . . . . . . 

SFP. . . . . . . . . . . . . 

SRO. . . . . . . . . . . . . . .

TAC. . . . . . . . . . . . . . . 

TEN. . . . . . . . . . . . . . . .

USA PATRIOT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tools Required to Intercept and Obstruct Terrorism

USDA. . . . . . . . . . . . . . . . . . . . 

UK..............

WMA. . . . . . . . . . . . . .
A P P E N D I C E S
Notes

1