Advanced seed chipping machines inside Monsanto agribusiness headquarters in St. Louis, Mo. Photograph by Brent Stirton/Getty Images.
By Alex Kotch
President Donald Trump’s pick to help lead a key financial regulatory agency is married to the top lobbyist for Monsanto—a company over which she will have oversight—and until last year did lobbying work for an industry she will also oversee, federal documents show. The nominee, Dawn DeBerry Stump, earlier worked for one of the key architects of a 2000 law that deregulated risky Wall Street speculation that contributed to the 2008 financial crisis.
Stump was nominated last year to sit on the Commodity Futures Trading Commission (CFTC), which was created to regulate trading of commodities such as wheat and corn—but now includes futures contracts for other commodities and financial instruments such as swaps.
Some analysts worry that insufficient financial regulation could cause another crisis, as student loan, auto loan, and credit card debt have reached staggering heights. Now, after almost a year, the Senate is expected to move on confirming Stump’s nomination in the near future.
Direct Lines From Monsanto to the CFTC
Stump’s husband, Jeremy Stump, is vice president of North America government affairs for Monsanto, the giant agriculture multinational now being acquired by Bayer of Switzerland. In 2017’s fourth quarter, the most recent for which filings are available, he lobbied Congress and the U.S. Department of Agriculture for Monsanto on unspecified “agribusiness transaction issues” and other matters. Monsanto spent more money than any other agriculture business lobbying the federal government in 2017, according to data compiled by the Center for Responsive Politics.
Jeremy Stump came to Monsanto after a seven-year stint at the USDA, which also oversees agriculture businesses. Dawn Stump’s most recent financial disclosure filing for her CFTC nomination shows that her husband owns as much as $350,000 worth of Monsanto stock as well as significant stock options and a Monsanto retirement account and pension.
The potential for conflicts of interest was addressed in her May 2017 ethics agreement. Stump pledged, “I will not participate personally and substantially in any particular matter that to my knowledge has a direct and predictable effect on the financial interests of Monsanto Company unless I first obtain a written waiver.”
White House counsel Donald McGahn has drawn criticism from ethics watchdogs for his waivers letting Trump nominees work on issues that present potential conflicts of interest. Stump’s pledge includes standard language that rules out helping individual companies but may allow decisions that benefit overall industries in which nominees have financial stakes.
Monsanto’s recent disclosure forms indicate lobbying on regulatory activity broadly, but do not specify anything directly about commodity futures or other derivatives. The company is a member of the American Feed Industry Association, which lobbied Congress and the CFTC directly on CFTC nominations in the third quarter of 2017, when all three current commissioners were confirmed and Stump’s nomination was pending. The forms do not indicate what positions the group took on individual nominees.
Monsanto’s business model depends on commodity futures, according to its most recent quarterly Securities and Exchange Commission filing. “Monsanto’s commodity price risk management strategy is to use derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from volatility in commodity prices,” the filing says. “Price fluctuations in commodities, mainly in corn and soybeans, can cause the actual prices paid to production growers for corn and soybean seeds to differ from anticipated cash outlays. Monsanto generally uses commodity futures and options contracts to manage these risks.”
The filing also notes that Monsanto’s “outstanding foreign currency derivatives are covered by International Swap and Derivatives Association (“ISDA”) Master Agreements with the counterparties.” The ISDA also lobbies the CFTC directly, according to lobbying disclosure forms.
“Monsanto has robust conflict of interest policies and immediately upon Ms. Stump’s nomination, Mr. Stump undertook prompt action consistent with those policies,” Christi Dixon, a Monsanto spokesperson, told TYT. “Upon Ms. Stump’s confirmation, Monsanto will ensure proper segregation of duties to ensure there is no conflict of interest.”
While futures and other derivatives were designed to help farmers and other industry stakeholders hedge against price fluctuations, today they are used by speculators betting on—or sometimes driving—future price shifts.
Bayer used derivatives to hedge against financial volatility associated with its attempt to purchase Monsanto. The German pharmaceutical company said in a recent SEC filing that it was using derivatives to mitigate the risks of fluctuating interest rates and foreign-currency exchange rates. Bayer’s $66 billion acquisition just won approval from the Justice Department but is awaiting regulatory approval in multiple countries.
Michael Greenberger, a law professor at the University of Maryland and former director of the CFTC’s Division of Trading & Markets from 1997 to 1999, told TYT, “A lot of these big agriculture corporations went from being commercial hedgers . . . to being speculators.” He said speculation is both necessary and dangerous. “You need speculators in markets to provide liquidity, but if you let speculators overwhelm the markets, it totally unmoors the market.”
Greenberger said, “Someone like Stump would not be in favor of limited speculation in these markets.”
Monsanto did not directly respond to questions about potential speculation. Greenberger said, “It wouldn’t surprise me if Monsanto is speculating . . . It’s a very big player.”
‘Modernizing’ Commodity Futures
Nearly two decades ago, Stump worked as a congressional aide. According to The Almanac of the Unelected, she was a legislative assistant to then-Sen. Phil Gramm (R-Texas) from 1999 to 2001, during which he cosponsored the Senate’s Commodity Futures Modernization Act of 2000.
The primary sponsor of the bill was Sen. Richard Lugar (R-Ind.). Lugar’s counsel at the time, Walter Lukken, was “prominently involved in the development, drafting, and passage” of the bill, according to his biography at the CFTC, to which he was later appointed.
The House’s companion bill, introduced by Rep. Thomas Ewing (R-Ill.), passed quickly, but according to HuffPost, the Senate version stalled because “Gramm opposed any language that could provide the SEC or the CFTC with any hope of authority in regulating or oversight of financial derivatives and swaps.” Gramm and Ewing eventually came up with compromise language that they attached to the 11,000-page appropriations bill in December 2000.
The law exempted derivatives such as swaps from regulation by the SEC and the CFTC—which had already implemented rules easing back on swaps and derivatives—and added an exemption, later known as the “Enron loophole,” for energy derivatives trading.
“On December 14, the bill rushed through in a single day, deregulating derivatives six ways from Sunday,” said Greenberger.
President Bill Clinton signed the bill into law weeks before the end of his presidency.
Four years after the bill passed, the Enron loophole was blamed in part for letting Wall Street speculation drive the price of gas up to $4 per gallon. And three years after that, deregulated derivatives—particularly credit default swaps—tipped the first dominoes that led to the demise of numerous large financial firms, causing the global financial crisis.
Lobbying and the Revolving Door
Stump has moved back and forth between government and the private sector. In 2010, she began two years as a registered lobbyist for the New York Stock Exchange, directly lobbying the CFTC, as well as Congress and the SEC, on financial issues including derivatives regulation.
Her next job was at the Futures Industry Association (FIA). For most of her time at the FIA, she served as a senior vice president and head of government affairs. Her boss there, the head of the FIA, was Lukken, the former Senate colleague who helped deregulate derivatives.
Lukken had come to the FIA following a stint as President Bush’s choice to chair the CFTC. Lukken presided at the CFTC over what Matt Taibbi of Rolling Stone later called “some of the worst chaos in the commodities markets.”
“I observed and testified on Lukken many times about what he did at the CFTC,” said Greenberger. “He was a George W. Bush selection for chair and was, in a very nuanced way, a complete deregulator.”
In the third quarter of 2014, while Stump led the FIA’s lobbying operations, the group lobbied the CFTC on the “implementation of Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act,” a provision that Stump had helped draft when she was a Senate staffer.
In mid-2016, after almost five years working for Lukken, Stump left the FIA to start her own lobbying shop. The new firm lobbied exclusively for only one client: The FIA. Lobbying records show the FIA paid her firm $230,000 from mid-2016 through mid-2017. She terminated her work for the FIA in mid-May of last year, a month before her official nomination, according to lobbying records. Until then, the records show, Stump had lobbied Congress for the FIA on issues including “Financial Derivatives Legislation and Regulation.”
In the ethics agreement for her CFTC nomination last year, Stump agreed to pause her lobbying business upon confirmation and not to “participate personally and substantially in any particular matter involving specific parties in which I know a former client of mine is a party or represents a party, for a period of one year after I last provided service to that client, unless I am first authorized to participate.”
Now, nearly one year later, Stump will likely be able to participate almost immediately after confirmation in any matters involving the FIA or its members. In that event, Lukken’s trade association may soon lobby his recent employee and former congressional colleague, at a government agency that he used to run.
The CFTC Awaits
Stump has generally kept a low public profile, so it’s not entirely clear what her regulatory approach would be as a CFTC commissioner. But in a 2015 bulletin published by her lobbying business, Stump Strategic, Stump predicted “that the Dodd-Frank Act will not face complete repeal but instead will be tweaked with ‘more targeted alternatives designed to simplify and assist those businesses and financial institutions which have been inadvertently captured by [the law],’” according to Law 360.
In September 2017, only a few months after Stump ended her lobbying for the FIA, the trade group issued recommendations to the CFTC. “Now that we have had a few years to evaluate the effect of the Dodd-Frank Act, we have been able to identify areas where regulations would benefit from simplification, modification, or reconsideration,” Lukken said. The recommendations include getting rid of some swaps reporting requirements, reducing oversight of U.S. customers’ swaps trading in foreign markets, loosening risk management requirements and reevaluating the need for position limits—caps on the amount of derivatives contracts that investors can hold, in order to prevent manipulation of market prices.
The current CFTC chair is J. Christopher Giancarlo, whom Trump picked to lead the commission after several years as a commissioner. Steve Suppan, senior analyst at the Institute for Agriculture and Trade Policy, told TYT that at a recent conference, Giancarlo expressed excitement at the prospect of Stump joining the commission .
Analysts today still see a lot of risk in financial markets. Subprime mortgages are re-emerging. A financial crash could originate from any sector, and Americans have huge credit card, car loan, and student loan debt. Default rates have been rising.
Suppan said that under Giancarlo, a former derivatives broker, the CFTC has announced an enforcement philosophy that relies on the industry to self-report violations, hoping that will enable the agency to settle cases more quickly. And Giancarlo hasn’t appeared keen to set strict limits on speculators. On top of that, said Suppan, “it looks like the CFTC is going to follow the industry position that the government shouldn’t be able to access the source code of high-frequency trading algorithms, which would make it more difficult to assess what triggered a disruption. . . . By agreeing with SIFMA [the Securities Industry and Financial Markets Association] and the FIA that law enforcement shouldn’t be able to access these codes, the CFTC is abrogating its enforcement duties.”
The CFTC’s 2017 enforcement report shows a dramatic decrease in terms of total fines assessed and total number of bad actor designations, Suppan noted. “With a smaller enforcement budget and a new enforcement philosophy, I’d say that today’s CFTC is arguably focused on small traders and small fines.”
Suppan doesn’t think a 2008-style crisis will hit U.S. big banks right now, but said, “what you could have is a crash that’s triggered from a foreign subsidiary.” Greenberger identified one loophole in Dodd-Frank that he sees as a major risk. At the end of President Barack Obama’s second term, Greenberger said, the CFTC began the process of closing the loophole, which lets U.S.-based financial firms assign their transactions to foreign subsidiaries, exempting them from Dodd-Frank regulations. He said the CFTC didn’t finish fixing the loophole before Trump took office, and the CFTC hasn’t continued that work.
In Congress, Republicans and some Democrats are attempting to roll back Dodd-Frank regulations to let banks and other financial institutions engage in riskier practices. The Economic Growth, Regulatory Relief, and Consumer Protection Act, which recently passed the Senate, allows large banks to take on more of the same kinds of risk that brought down the economy in 2008.
“I’m not saying [a 2008-style crash] will definitely happen . . . but all I’m saying is if you’re swept away by the theory that we’re in economic nirvana right now, you’re kidding yourself,” said Greenberger. “There are major problems.”
President Trump nominated Stump for the CFTC in June 2017. The commission typically consists of three members appointed by the president’s political party and two selected by the opposing party. The CFTC currently has only three members: two Republicans and one Democrat.
On Monday the White House said that Trump plans to nominate Democrat Dan Berkovitz, a former CFTC general counsel under President Barack Obama. The Wall Street Journal reported that his nomination is expected to be paired with Stump’s. The Senate has not yet scheduled votes for the two, but Stump’s nomination is on the Senate Executive Calendar and is “subject to nominee’s commitment to respond to requests to appear and testify before any duly constituted committee of the Senate.”
President Trump has said his administration would protect farmers and other small business from Wall Street and big lobbyists. Attempts to reach the White House for comment were unsuccessful.