CFTC toughens up enforcement, hires ex-prosecutor

WASHINGTON (Reuters) - The U.S. futures regulator hired a former federal prosecutor for its top enforcement position on Monday, another signal it plans to crack down on traders who try to manipulate prices or defraud investors.

The Commodity Futures Trading Commission appointed David Meister, who has nearly 25 years of experience working on white-collar crime, as its new director of enforcement -- a key player in the agency's decisions about how to use new tools to police futures and swaps markets.

"I think people would expect him to be an active prosecutor and an aggressive prosecutor," said Howard Heiss, a partner with law firm O'Melveny & Myers.

"He will couple that with fairness. He's not an unreasonable guy," Heiss said.

The CFTC is taking a page from the strategy of the much-larger Securities and Exchange Commission, which also plucked a former federal prosecutor to lead its enforcement division.

Robert Khuzami, who led the securities and commodities fraud task force at the U.S. attorney's office, was hired to shake up the SEC's enforcement division after it missed Bernard Madoff's epic investment fraud despite numerous warnings and red flags.

"David is an excellent lawyer and will serve the CFTC and the public in an exemplary manner," Khuzami said.

Meister also worked on the securities and commodities fraud task force and handled cases involving market manipulation.

Meister, currently a partner with the law firm Skadden, Arps, Slate, Meagher & Flom, will not do interviews on his appointment, a CFTC spokesman said.

Having experience on both sides of fraud cases, Meister will bring a practical perspective to his new job, said Heiss, who worked with him in the early 1990s on the U.S. Attorney's fraud unit.

"You don't want to be throwing resources at cases that are unlikely to have any merit," Heiss noted.

Meister will "bring a depth of experience to the CFTC," said Mark Schonfeld, a partner at Gibson Dunn & Crutcher LLP and former director of the SEC's New York office.

"He will substantially increase the strength of the CFTC's enforcement division. He has a lot of experience in white collar crime as a prosecutor and a defense lawyer."

The Dodd-Frank financial reform law gave the CFTC authority over the $615 trillion over-the-counter derivatives market, and the agency is writing a host of new regulations to implement the law starting next year.

The CFTC has a lackluster record when it comes to prosecuting market manipulation cases, but some officials have said they hope new powers given to the agency in the law will make enforcement easier.

"As the Commission implements the Dodd-Frank Act's new provisions against fraud, manipulation and other disruptive trading practices, David's background and leadership will be invaluable," said CFTC Chairman Gary Gensler in a statement.

The agency is also conducting a detailed investigation of the silver market, which it began in September 2008.

The CFTC boosted its enforcement staff to more than 170 people last year, up from an all-time low of 109 in fiscal 2008, but it wants to have about 220 in fiscal 2011.

However, additional funding for the agency has stalled in Congress before the election, and Gensler and other CFTC leaders have expressed concern.

Meister will be challenged by having to set priorities at a time when the CFTC is expanding both its ranks and its focus, said Geoffrey Aronow, a former head of CFTC's enforcement division, now partner with the law firm Bingham McCutchen.

"Either he's going to have a lot of new personnel and a greatly expanded division, in which he has to successfully integrate people in a short period of time -- or he's going to have to figure out how to handle this much broader jurisdiction without a materially increased number of personnel," Aronow said.

(Editing by Lisa Shumaker and Jim Marshall)