The CFTC Announces Multiple Whistleblower Awards Including The Largest Amount Ever Awarded At $30 Million

• Posted on: Aug 8 2018

Last month, the Commodity Futures Trading Commission (“CFTC” or the “Commission”) announced that it had paid whistleblowers more than $45 million in awards.  In one case, the CFTC awarded approximately $30 million to a whistleblower (here), the largest amount ever awarded by the CFTC, and in the other, the CFTC awarded more than $70,000 to a whistleblower living in a foreign country, the first of its kind under the CFTC Whistleblower Program (here).

The awards reflect the recent success of the CFTC’s Whistleblower Program.

“Today’s substantial Whistleblower awards mark another significant step in what has been a transformative year for the CFTC’s Whistleblower Program and the Division of Enforcement,” said James McDonald, Director of the CFTC’s Division of Enforcement.  “Whistleblowers have added significant value to our enforcement program by enabling the Commission to swiftly identify misconduct and hold wrongdoers accountable.  I expect this trend to continue as the Commission continues to receive increasing numbers of high-quality whistleblower tips.”

“The Commodity Futures Trading Commission is committed to creating a level playing field for all market participants, and the Whistleblower Program is helping us achieve this goal,” said CFTC Chairman, J. Christopher Giancarlo.  “I hope that today’s awards encourage anyone with knowledge of violations of the Commodity Exchange Act to come forward and become a whistleblower.”

Previously, the highest award paid by the CFTC to a whistleblower was in March 2016.  In that case, the whistleblower received an award of more than $10 million (here).

The CFTC did not identify the recipients of the awards or the conduct that was the subject of the awards. Media reports, however, have linked the $30 million award to an investigation conducted by the Securities and Exchange Commission (“SEC”) and the CFTC into investment products offered by JPMorgan Chase. (Here and here.)

The CFTC is generally prohibited from disclosing information that “could reasonably be expected to reveal the identity of a whistleblower.” 7 U.S.C.A. § 26(h)(2); 17 C.F.R. § 165.4.  Consistent with this confidentiality requirement, the CFTC will not disclose the name of the enforcement action in which the whistleblower provided information, the award percentage granted to the whistleblower, and the exact dollar amount of the award granted.

All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the Commodity Exchange Act (“CEA”).  No money is taken or withheld from harmed investors to fund the program.

The CFTC Whistleblower Program

The CFTC Whistleblower Program, like the SEC Whistleblower Program, was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”). Pub. L. No. 111-203, § 748, 124 Stat. 1376 (2010); 7 U.S.C. § 26.  [For a discussion of the CFTC Whistleblower Program, click here.]

The Act directs the CFTC to pay awards to whistleblowers who voluntarily provide the CFTC with original information that leads to an enforcement action resulting in monetary sanctions exceeding $1 million. Id. Under the Whistleblower Program, relators are eligible to receive an award of between 10 percent and 30 percent of the monetary sanctions collected. 7 U.S.C. § 26(b)(1); 17 C.F.R. § 165.8.

The CFTC has broad discretion in determining the amount of the award.  In exercising this discretion, the CFTC is guided by certain factors, including 1) the significance of the information provided by the whistleblower, i.e., whether the information is reliable and complete such that it conserves the CFTC’s resources; 2) the assistance provided by the whistleblower and his/her attorney, including (i) the degree of cooperation and assistance provided to the CFTC staff; (ii) the timeliness of the whistleblower’s initial disclosure; (iii) the efforts undertaken by the whistleblower to remediate the harm caused by the alleged violation; and (iv) any unique hardships experienced by the whistleblower as a result of reporting the violations; 3) the degree to which an award enhances the CFTC’s ability to enforce the commodity laws; and 4) the extent to which the whistleblower participated in internal compliance systems, such as reporting the violations of the commodities laws internally before, or at the same time as, reporting them to the CFTC and assisting in an internal investigation or inquiry. 17 C.F.R. § 165.9.  The CFTC can pay awards not only on CFTC enforcement actions, but also related actions brought by foreign futures authorities if certain conditions are met.

In the six-and-a-half years since the inception of the CFTC Whistleblower Program, the Commission has paid whistleblowers an award on only four occasions: a $240,000 award in May 2014; a $290,000 award in September 2015; the $10 million award referenced above; and a $50,000 award in July 2016.  By contrast, the SEC has issued awards in excess of $266 million to 55 whistleblowers under its Whistleblower Program. (Here and here.) The SEC has also issued awards to seven individual whistleblowers of more than $10 million each, with the largest award totaling $50 million.

Amendments to the CFTC Whistleblower Program

In May 2017, the CFTC approved amendments to its Whistleblower Rules that significantly expanded whistleblower eligibility requirements and strengthened anti-retaliation provisions. (Here.) Among other things, the CFTC or the whistleblower may now bring an action against an employer for retaliation against a whistleblower, and employers are prohibited from taking steps to impede a would-be whistleblower from communicating directly with CFTC staff about a possible violation of the CEA by using a confidentiality, pre-dispute arbitration or similar agreement.

These amendments, along with the impact of the Supreme Court’s recent decision in Digital Realty Trust, Inc. v. Somers, should lead to increased whistleblower tips.  In Digital Realty, the Court held that the anti-retaliation provisions of the Act apply only to employees who report potential securities law violations directly to the SEC, and not only through internal company means. [This Blog posted an article about the Digital Realty decision here.]  In 2017, the CFTC received a record number of whistleblower reports, nearly twice as many as in any other year. According to the CFTC, 2018 is on track to receive nearly twice as many tips as in 2017. (Here.)

Takeaway

The awards, and the amendments to the Program, highlight the CFTC’s recent emphasis on the role of the whistleblower in fulfilling its regulatory mission. In the wake of these events, it is likely that the number of whistleblower tips will continue to rise.  For whistleblowers, these events should serve to encourage the disclosure of information about the potential violation of the commodities laws.  For companies, these awards should serve as a reminder to 1) adopt and implement policies and procedures to prevent and detect misconduct, including internal reporting mechanisms for individuals to report potential misconduct; 2) investigate allegations of wrongdoing reported by whistleblowers and remediate any misconduct found by investigators; and 3) avoid taking any retaliatory actions against whistleblowers for coming forward with information about potential misconduct.

Tagged with: CFTC, CFTC Whistleblower Program, Commodities Futures Trading Commission, Dodd-Frank Act