By Lene Powell, J.D.
Watchdog group Better Markets has filed a complaint asking the CFTC Inspector General to investigate Commissioner Caroline Pham for “possible ethics violations and misuse of her position.” The group says Pham publicly revealed highly confidential nonpublic information about a pending application by KalshiEx, LLC, giving the firm a window into confidential Commission discussions and tipping the firm to withdraw its application. The group contends that Pham’s actions violated CFTC ethical standards.
Pham discussion of Kalshi application. KalshiEx LLC, a registered derivatives exchange, has requested CFTC approval to be able to list political event contracts. The application remains pending.
In its complaint to the CFTC Office of the Inspector General, Better Markets argues that Pham may have committed three related ethical violations relating to the Kalshi violation.
First, the group said it appears that Pham publicly disclosed highly sensitive, confidential, non-public CFTC information on the Kalshi application—a matter actively under Commission review—in order to publicly alert Kalshi, a private company, as to the substance of those confidential discussions and analyses as well as possible or likely impending actions.
According to the complaint, in an interview with Politico for a story published November 8, Pham revealed that it appeared the Commission was preparing to rule against the Kalshi application and stated that she strongly disagreed with that decision. Better Markets says Pham divulged sensitive details including that agency staff would include a definition of “gaming” in the order—a key term. Pham also allegedly revealed key procedural information that Commission members were voting one at a time on the decision and that her office had not advanced the decision.
Second, Better Markets says Pham actively advised Kalshi to withdraw its application. According to the Politico article, Pham said Kalshi should drop its bid.
Third, Better Markets says there are corroborating reports that Pham may be purposefully withholding her vote on the Kalshi application, both to give Kalshi a chance to withdraw the application and to protect the broader industry from an adverse ruling on an interpretation of “gaming” in relation to event contracts.
According to the group, delaying or withholding a vote is not necessarily improper in itself, but an investigation is warranted to determine if it is being done for the purpose of benefiting a Commission registrant with an application undergoing Commission review.
Alleged ethical violations. Better Markets said Pham’s “striking and seemingly inappropriate behavior betrays an apparent disregard for the ethical duties incumbent upon” a CFTC commissioner.
Turning to specific ethical rules, Better Markets cited CFTC regulation 17 C.F.R. § 140.735-5, prohibiting CFTC employees from divulging confidential information. The group also cited a similar provision in the Standards of Ethical Conduct for Employees of the Executive Branch.
However, there is some question whether § 140.735-5 applies to Pham, as a CFTC commissioner.
The prohibition in § 140.735-5 refers specifically to “A Commission employee or former employee.” Better Markets argues that this applies to Commission members as well as employees because introductory section § 140.735-1 specifies that the standards of conduct encompass Commission members and employees of the Commission. However, § 140.735-5 distinguishes between “the Commission” and a “Commission employee,” with the prohibition on divulging confidential information referring to a Commission “employee.”
Request for response. Better Markets asked the Office of the Inspector General to confirm whether the office will undertake an investigation. If the office declines to pursue an investigation, Better Markets requests an explanation of the grounds for that decision. If the office conducts an investigation, the group requests that the office share the detailed results with it and the public to the fullest extent permitted under applicable laws and regulations.