Retiring CFTC judge’s allegations should concern small investors

Cards on the table: When George H. Painter says the game is rigged against the small investor in Washington, I have reason to take him at his word.

Even when his word comes wrapped up like a bombshell.

Painter, 83, detonated that bombshell recently in the course of announcing his retirement as an administrative law judge for the Commodity Futures Trading Commission, effective in January. In a public notice, he accused his lone colleague on the CFTC bench, Bruce Levine, of having made a vow nearly 20 years ago never to rule in a complainant’s — that is, an investor’s — favor.

“A review of his rulings,� Painter stated, “will confirm that he has fulfilled his vow.�

He asked the CFTC, which regulates the commodity futures markets, to bring in a new judge instead of transferring his pending cases to Levine. The two judges rule on allegations of fraud or other misdeeds brought by investors against futures brokers and traders.

Strong words, but not entirely out of character for Painter. And they’ve stirred up a fairly ugly cloud of dust, involving claims and counterclaims about Painter’s physical and mental health, traded between his wife and other members of his family in a Maryland court. Whether the court case would have reached the newspapers if not for Painter’s attention-grabbing resignation is hard to say. But it’s now being used to dismiss his attack on Levine as the words of someone who’s not all there.

I first encountered Judge Painter nearly three decades ago, when he issued a number of stern rulings involving a Newport Beach investment operator I had been writing about.

The investment firm, Monex International, had been hawking illegal futures contracts, he ruled. In one case, he found that Monex had ignored a customer’s repeated pleas to cash out her deteriorating stake, and awarded her $20,000 in reparations.

When I reached Painter again last week, he didn’t seemed to have changed much. “It’s gone to hell,� he said, referring to the standing of the investor at the CFTC. “But it’s always been that way, hasn’t it? We’re not prosecuting the bad guys.� For the record: He sounded perfectly lucid.

Under normal circumstances, Painter’s view might be taken to heart by the bureaucratic establishment in Washington. It was regulatory agencies’ failures to look out for consumers that helped win enactment of a new consumer protection agency this year. Furthermore, the CFTC has long had the character of a place where regulations go to die — although, to be fair, that’s not entirely the fault of its commissioners.

In 1998, during the Clinton administration, then-CFTC Chairwoman Brooksley Born urged Congress to place over-the-counter derivatives, then a $100-trillion business, under the agency’s control. She was rudely slapped down by her fellow financial regulators, who said things were fine. That was before derivatives helped bring down Enron Corp. in 2001 and the world financial system in 2008.

One of Born’s predecessors as CFTC chair was Wendy Gramm, wife of former Sen. Phil Gramm (R-Texas), who pushed through key financial deregulatory legislation while he was senator.

After leaving the CFTC, Wendy Gramm joined the Enron board. She was still there when the company went under. The CFTC chair to whom Judge Levine supposedly made his pledge, according to Painter, was Wendy Gramm. (I couldn’t reach her or Levine for their comments on Painter’s remarks.)

Returning to the case involving Judge Painter’s health, his wife of eight years, Elizabeth Ritter, has petitioned to be made his legal guardian. Ritter, a CFTC attorney, says Painter was diagnosed with Alzheimer’s disease in February and transferred to a residential treatment center in June.

She says Painter’s son, Douglas, and other relatives improperly removed him from the center, got him a lawyer to file for divorce, and have kept him on the move cross-country to keep him isolated and disoriented.

Douglas Painter, a Los Angeles attorney, contends that Ritter overmedicated his father in preparation for the Alzheimer’s tests and tried to isolate him from his friends and family, and that no one else has reported seeing the symptoms in his father that Ritter reports.

“Elizabeth just wants what’s best for him to protect his well-being and his dignity,� her lawyer, Kim Viti Fiorentino, told me. Judge Painter’s lawyer, Jean Galloway Ball, responded: “He’s in full control of his affairs, and if he needs assistance he can make his own choices.�

It’s fair to say that, whatever one thinks of the allegations about Judge Painter’s treatment, the litigation process alone is Dickensian, and one can only hope that the judicial system works its way through the competing claims quickly and puts an end to it.

But it shouldn’t distract the CFTC from facing up to Painter’s assertions about Levine. I did a cursory search of both judges’ rulings in reparations cases, in which investors seek to recoup losses due to alleged fraud, going back to 2007.

In that period, Painter found for investors at least five times, and Levine once (in that case he cut the investor’s $114,000 claim to $52,000). Both also dismissed a lot of claims. The most recent ruling I could find from Painter was a closely reasoned 21-page decision dated Feb. 26, about the time Ritter says he was first diagnosed with Alzheimer’s and well after she says he first exhibited severe behavioral problems, including alcoholism.

It would be hard for the commission to claim it has been unaware of serious issues with Levine’s work. My search found three cases in which it overturned dismissals by Levine, sometimes with harsh words for his performance.

In 2007, for instance, the CFTC concluded that Levine committed “procedural errors� and “severely prejudiced� an investor in his $74,000 complaint against a futures broker. The commission awarded the investor more than $32,000.

In another case, the commission overruled Levine’s dismissal of an investor’s complaint twice before finally transferring the matter to Painter. He awarded the investor, a 75-year-old retiree, $47,627.

In a third case, the CFTC bounced a dismissal back to Levine with instructions to waive the procedural rule that prompted his dismissal. Levine dismissed it again, throwing in for good measure harsh words about the commission’s performance.

In 2000, the Wall Street Journal — in a piece Painter appended to his resignation notice — found that during his eight years at the commission, Levine had never found for an investor except in a few cases involving defunct commodities firms.

He still has that reputation. Steven Berk, an investor protection attorney in Washington, says, “It’s an open secret among my brethren that if you get Levine, he’s not going to rule for the investor.�

It’s possible that Levine’s record is fairer than it looks or that his dismissals were the product of sound legal reasoning, not bias.

But if the CFTC has been harboring in its bosom a judge with a pronounced hostility to the consumer all these years, how sad is it that it took another judge’s parting blast to wake it up?

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at [email protected], read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.