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Whistleblower Programs Target Market Manipulation

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  • Posted on: Feb 13 2017

In February, the Royal Bank of Scotland was hit with a $85 million civil penalty by the U.S. Commodity Futures Trading Commission (“CFTC”) in connection with the bank’s attempted manipulation of a benchmark tied to U.S. dollar based swap transactions over a five-year period from January 2007 through March 2012.

The commodities watchdog found that RBS bid, offered and executed transactions that were pegged to the U.S. Dollar International Swaps and Derivatives Association Fix that were specifically timed to take advantage of cash-settled swap options (or “swaptions”) that were priced against the benchmark.

The CFTC was alerted to this conduct by a whistleblower. The enforcement action is part of an ongoing effort, in conjunction with the U.S. Securities and Exchange Commission (“SEC”), to prevent these market manipulation schemes.

What is market manipulation?

Market manipulation is any conduct aimed at controlling or artificially affecting the trading markets in order to deceive investors, including:

  • Spreading false or misinformation;
  • Inappropriately restricting the number of publicly available shares; and
  • Rigging quotes, prices, or trades to artificially inflate demand.

Under the SEC and CFTC whistleblower programs, there are a number of market manipulation schemes that may be eligible for an award, such as benchmark rates manipulation, pump and dump schemes, and so-called spoofing schemes. In particular, the manipulation of benchmark rates continues to be an area of enhanced regulatory scrutiny in the wake of the LIBOR bid rigging scandal.

Whistleblower Rewards

Whistleblowers who voluntarily provide the regulators with original information about violations of the federal securities and commodities laws that result in a successful enforcement action and that lead to monetary sanctions may be eligible for monetary awards from ten to thirty percent of the sanctions. Since these laws went into effect, millions of dollars has been awarded to numerous whistleblowers, whose identities are protected by the programs.  A whistleblower can report a violation anonymously, provided that he or she is represented by an attorney.

Ultimately, the CFTC and SEC believe that detecting market manipulation schemes is crucial for investor  confidence in the integrity of the financial markets. If you have knowledge of a violation of the federal securities of commodities laws, an experienced attorney can advise you on how to report your concerns.

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