CFTC’s regulatory pioneer Bagley dies aged 96

by Gabriel Baumgaertner

William T. Bagley, a veteran California legislator who moved to Washington to preside over the chaotic first years of the Commodity Futures Trading Commission as its founding chairman, has died. He was 96.

He died on June 9 at his home in San Rafael, California, said his wife, Diane. He had dementia for a number of years, she said. 

The acting chairman of the CFTC, Caroline Pham, said in a statement, “Chairman Bagley was instrumental in laying the foundation for what has become the world’s preeminent derivatives regulator.”

Tapped by President Gerald Ford in 1975, Bagley was an unlikely choice to chair the CFTC, which Congress had created a year earlier to take over regulation of fast-growing commodities trading. He was an affable Californian and a liberal Republican who had served 14 years in the lower house of the state legislature before losing a bid to become state controller in 1974. He dreamed of serving in the US Senate.

He arrived in Washington in April 1975 to lead an agency so new it had no offices and no permanent staff but a big mission: to oversee the nation’s 14 commodities and futures exchanges and several dozen tradable commodities, which included soybeans, pork bellies and gold coins and was starting to expand into intangible products such as options based on the performance of the stock market.

Bagley didn’t pretend to be an expert in the subject. “If you think I know what I’m doing,” he joked to the New York Times, “you’re mistaken.” Businessweek magazine called him an “inexperienced amateur.”

He was allocated just $11 million to organize the agency; by comparison, the industry it was regulating had grown from $81 billion in trading volume to over $500 billion in the span of six years, according to a 1976 Los Angeles Times report. It was an opaque world run by slick traders and secretive speculators who didn’t welcome what they saw as government interference in the open market. 

Open Government

Bagley, who had written two public-records laws while in the California Assembly, found both Washington and the commodities trading world to be closed, territorial places that ran counter to his values of government transparency. He once boycotted a meeting he was supposed to chair after the other members of the CFTC’s board voted to close it to the public.

He pledged to avoid overzealous regulation while vowing not to become too friendly with the industry. He tried calming suspicious traders and speculators by paraphrasing Shakespeare’s Julius Caesar, “I come here today not to bury the markets, but to appraise them.”

But his gregariousness with the press angered futures traders who believed secrecy was a key to their success. His candor even grated on some legislators and members of the executive branch, such as when he publicly questioned the efficacy of executive agencies and commissions and even suggested they should all require congressional review before being reauthorized. 

“I would like to do away with the independent commissions as bodies politic,” Bagley said in a 1977 speech. “The system is not participatory democracy because there is no accountability.”

As Bagley weighed in on such macro matters, abuses within the commodity exchanges came to light as annual trading neared $1 trillion.

First Default

In one particularly egregious case in 1976, several operators on the New York Mercantile Exchange defaulted after not delivering nearly 50 million pounds of Maine potatoes. It was the first time that major purveyors had failed to honor their contracts to deliver promised goods since US trading began in 1851. The default fueled a sense that the CFTC was struggling to regulate the commodity exchanges.

Iowa Senator Dick Clark said that the CFTC was “getting too close to the industry.” Paul McGuire, chairman of the Chicago Board of Trade, the largest exchange regulated by the CFTC, told the Wall Street Journal that agency officials were “way in over their heads.” Some of that criticism of the CFTC as a weak and outgunned regulator is still heard today.

When Bagley acted as an enforcer, he was accused of manipulating the market: The Chicago Board of Trade excoriated the chairman for exposing the positions of speculators after he filed suit against a prominent Texas family for allegedly cornering the soybean market. The family countersued the CFTC, seeking an injunction against the agency, Bagley’s ouster and a restitution of all lost profits. After a two-year legal saga — and two months after Bagley’s resignation from the agency — the US Court of Appeals upheld the CFTC ruling.

Bagley also angered the Chicago Board of Trade when he tried to implement a minority internship program through the CFTC, noting that the traders were all “pale and male.”

A 1978 audit by the General Accounting Office — known today as the Government Accountability Office — found the CFTC’s surveillance and enforcement programs to be “greatly in need of improvement.” It said “unscrupulous brokers” and futures commission merchants “have little to fear that CFTC will detect abusive trading practices.” Defending the agency, Bagley said it lacked the staff and resources to create a regulatory structure of the scale needed to oversee such a large industry.

Fake Options Contracts

After an escaped convict named Alan Abrahams was arrested for allegedly stealing up to $25 million by selling fake options contracts under a pseudonym, Congress ordered a review of the agency in 1978 to determine whether or not to shut it down.

Bagley resigned his chairmanship in November 1978, two years before the end of his five-year term, and returned to California. He called Washington an “isolated, insulated and incestuous” atmosphere and lamented that his attempts to build a new kind of government agency had been for naught.

“I’ve learned that federal regulatory agencies usually end up working for the industry they are supposed to regulate,” Bagley told a reporter after his resignation. “I guess that’s what will happen here.”

William Thompson Baglietto — his father later changed the family name to Bagley — was born on June 29, 1928, in Woodacre, California, an unincorporated town in Marin County, roughly 25 miles north of San Francisco. He was class president and valedictorian of his undergraduate class at the University of California, Berkeley, and received his law degree from the university’s law school in 1952. 

He practiced law for 63 years, 35 of them at Nossaman LLP.

First elected to the Assembly in 1960, Bagley prioritized fair housing, tax reform and civil rights legislation. As a young assemblyman, he authored a human rights bill that encouraged the state education system to encourage visitation between school districts, improve teacher training for disadvantaged children and develop curricula to explain cultural differences between racial groups.

Following his time as a Washington regulator, Bagley served on the California Public Utilities Commission and the California Transportation Commission. As a member of the University of California Board of Regents, he led a successful movement to undo a statewide affirmative action ban. 

In addition to his wife of 60 years, the former Diane Oldham, survivors include five children — Lynn, Bill Jr., Walter, Shana and Tracy — and five grandchildren.

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