The Commodities Future Trading Commission (CFTC) Whistleblower Program was created under the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). The program is designed to encourage individuals to submit helpful information regarding commodities laws violations to the CFTC.
If the information leads to a CFTC enforcement action resulting in over $1 million in monetary sanctions, the whistleblower can receive an award of between 10 and 30 percent of the money collected. Whistleblowers may also be entitled to awards based on monetary sanctions collected by other agencies in actions related to a CFTC enforcement action.
Historically, the CFTC has made fewer and less generous whistleblower awards than the SEC, likely because the agency receives far fewer tips and has narrower jurisdiction, but that tide appears to be turning. Although the CFTC paid out approximately $250,000 to each of the two whistleblowers it rewarded in 2014 and 2015, in April 2016 it awarded over $10 million to a third.
The agency has also made increasingly aggressive use of its enforcement powers in recent years, nearly doubling the number of enforcements filed since the passage of Dodd-Frank. In 2015, the agency filed 69 enforcement cases and achieved a record of $3.14 billion in civil monetary penalties. Considering the recent uptick in CFTC enforcement and the $300 million set aside to reward CFTC whistleblowers, good tips will likely lead to large awards from the CFTC Whistleblower Program in the future.
Fraud Regulated by the CFTC
Unlike the SEC, whose jurisdiction is shaped by several securities laws, the CFTC’s authority comes from just one piece of legislation, the Commodity Exchange Act (CEA). The CEA gives the CFTC jurisdiction over the trading of futures, options, and swaps on “commodities,” which are traditionally thought of as tangible goods such as corn, wheat, and oil.
The CFTC has also asserted authority over various financial instruments and benchmarks, including Bitcoin and other virtual currency, London Interbank Offered Rates (LIBOR), Euro Interbank Offered Rate (Euribor), U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), and foreign exchange (forex) benchmarks.
The CEA imposes restrictions similar to those imposed on stock exchanges. Under the CEA, it is unlawful to:
- use any means of fraud or deceit in connection with the sale of commodities or futures contracts involving commodities; or
- manipulate the price of commodities or their futures contracts.
The CFTC also enforces reporting requirements on market participants in the derivatives markets that it regulates.
CFTC Whistleblower Program Requirements
There are several requirements to qualify for an award under the CFTC Whistleblower Program:
- The whistleblower must “voluntarily” provide the information.
- The whistleblower must provide “original information,” from his/her own “independent knowledge or independent analysis,” and/or be the “original source” of the information.
- The information provided must lead to a successful CFTC enforcement action resulting in monetary sanctions of at least $1 million.
- The whistleblower must follow the CFTC’s procedures for submitting a tip by completing and submitting a Form TCR both by email, fax, or mail, and by swearing that the information contained in the form is true and correct.
Certain individuals are excluded from the program, including attorneys who obtain the information from their clients, individuals involved in regulatory enforcement, and those who have engaged in criminal conduct relating to the reported fraud.
CFTC whistleblowers are protected from employer retaliation for reporting violations of the CEA. Under Dodd-Frank, an employer may not discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against a whistleblower for reporting a violation.
CFTC whistleblowers who experience such retaliation can sue their employers to be reinstated in their position and recover back pay and other compensation.
To find out more about whether a particular type of fraud is covered by the CEA and if you should submit information through CFTC Whistleblower Program, contact us today.