The U.S. Commodity Futures Trading Commission (CFTC) recently released its enforcement results for fiscal year 2016. In FY 2016, the CFTC filed 68 enforcement actions and obtained restitution, disgorgement and penalty orders totaling approximately $1.29 billion. The CFTC collected and deposited at the U.S. Treasury over $484 million in civil monetary penalties, nearly double the agency’s operating budget for FY 2016. CFTC also secured over $748 million in civil monetary penalties and $543 million in restitution and disgorgement orders. It pursued litigation in over 100 cases and issued its largest award to a whistleblower to date, for more than $10 million.
Despite its “banner year” the future of the program is in question. As reported in the Jackson Lewis P.C. November 10, 2016 update following the election of Donald Trump http://www.jacksonlewis.com/publication/workplace-law-under-president-elect-donald-trump-what-expect then President-elect Trump singled out the Dodd-Frank Act during the campaign as making it impossible for banks to lend money to businesses for the purpose of creating jobs. Therefore, a repeal of the entire law or parts of it is possible under President Trump and this might encourage Congress and the Securities and Exchange Commission (SEC) to rely more heavily on the Sarbanes-Oxley Act (SOX) whistleblower provisions and thus mandate that corporate compliance programs, as developed by publicly traded companies, be increasingly robust, providing for greater “self-regulation.” Where this would leave the CFTC whistleblower program remains to be seen.
Below is a chart of the 68 enforcement actions filed by the CFTC in FY 2016, by category.
|FY 2016 Enforcement Actions by Category|
|Manipulation, Attempted Manipulation, False Reporting, Disruptive Trading||4|
|Protection of Customer Funds and Financial Integrity||8|
|Illegal Off-Exchange Contracts, Failure to Register||8|
|Other Trade Practice: Wash Trades, Fictitious Trades, Position Limits, Trading Ahead||4|
|Misappropriation of Material, Non Public , Confidential Information, Misconduct by Employees against their Employers||4|
|Total Number of Enforcement Actions Filed||68|
|Notes: Some cases involve multiple types of charges, but are listed above by the primary charges. For example, 3 retail fraud actions also involved illegal, off-exchange transactions; 5 actions against registrants included a failure to supervise violation; 3 actions also involved violation of a prior CFTC order; and 9 actions also involved false statements to the CFTC or NFA.|
The mission of the CFTC is to “foster open, transparent, competitive, and financially sound markets, to avoid systemic risk, and to protect the market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act.” The CFTC’s whistleblower program was created by the Dodd-Frank Act and allows for the payment of monetary awards to eligible whistleblowers, and provides anti-retaliation protections for whistleblowers who share information with or assist the CFTC.
Under the CFTC’s whistleblower program, the agency will pay awards to eligible whistleblowers who voluntarily provide the CFTC with original information about violations of the Commodity Exchange Act (CEA) that lead to the CFTC bringing an enforcement action that results in more than $1 million in monetary sanction. The CFTC can also pay whistleblower awards based on monetary sanctions collected by other authorities in actions that are related to a CFTC enforcement action, and are based on information provided by a CFTC whistleblower. The total amount of a whistleblower award will be between 10 and 30 percent of the monetary sanctions collected in either the CFTC action or the related action. Under the DFA, employers may not retaliate against whistleblowers for reporting violations of the CEA to the CFTC. In general, employers may not discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against a whistleblower because of any lawful act done by the whistleblower.
The $10 million whistleblower award in FY 2016 is the largest award since Congress created the CFTC whistleblower program in 2010. To date, the CFTC has made just four whistleblower awards. The CFTC and the SEC whistleblower programs were set up at the same time to encourage whistleblowers in response to the financial crisis. Since their creation, the SEC program has paid out significantly more in whistleblower awards than the CFTC.