CFTC Pays Whistleblower Award for Related Action Brought by Another Federal Regulator
On March 4, 2019, the CFTC announced an award of $2 million to an anonymous whistleblower who was not an insider, but provided “critical information through independent analysis of market data” that lead to several million in recoveries by two regulatory agencies. Moreover, as the Order makes clear, the whistleblower’s $2 million award is based not just on the CFTC’s recovery, but also on a recovery in a related action brought by an undisclosed “Federal Regulator.” That related action was “based, at least in part, on the original information that [the whistleblower] voluntarily submitted to the Commission.”
Whistleblower Reports to One Agency can Trigger Multiple Enforcement Actions
It is not unusual for whistleblowers tips to precipitate enforcement actions by more than one agency. When a whistleblower reports fraud to a government agency, the government can choose how to go after the defendant and commonly shares relevant information with other regulatory bodies.
For example, a whistleblower may report money laundering violations by a broker-dealer of security futures – regulated both as securities by the SEC and as futures by the CFTC – to the SEC’s Whistleblower Program. Such a whistleblower report could trigger enforcement actions not just by the SEC, but also by the CFTC, the Department of Justice, the Financial Crimes Enforcement Network (FinCEN), the Financial Industry Regulatory Authority (FINRA), and even state regulatory authorities depending on where business was conducted.
When Can a CFTC Whistleblower Award be Based on a Recovery in a Related Action?
Recoveries by U.S. Authorities
As demonstrated by this award, the CFTC will consider recoveries in U.S.-based related actions in deciding the amount of a whistleblower award. This approach, which results from an amendment to the CFTC rules in July 2017, is appropriate, because it is the whistleblower’s information that contributed to each of the recoveries.
However, not every such recovery counts towards an award. The rules consider as related actions only those brought by specified entities, including, for example, the Department of Justice, other federal departments or agencies acting within the scope of their jurisdiction, or self-regulatory organizations like the National Futures Association and FINRA. Furthermore, the new rules will not consider the amount of any related SEC recovery in making an award if the whistleblower has already been granted an award under the SEC’s Whistleblower Program – whistleblowers cannot “double dip” and receive more than one award for the same action.
Recoveries by Non-U.S. Authorities
The CFTC rules also permit recoveries by “foreign futures authorities” to be considered as related actions for the purpose of whistleblower award determinations – something the SEC whistleblower rules currently do not provide for. Given the interconnected nature of global commodities and securities markets and the increasing cooperation and information sharing by the CFTC and the SEC with foreign authorities – see, for example, the Société Générale FCPA settlement involving DOJ and the French Parquet National Financier – consideration of recoveries by foreign futures authorities could be very important to a whistleblower. This may be particularly true for the growing number of international whistleblowers participating under the CFTC and SEC’s whistleblower programs.
The Commodity Exchange Act defines a “foreign futures authority” as any foreign government department, agency, governmental body, or regulatory organization empowered to enforce laws, rules and regulations relating to futures or options. Identifying whether a specified foreign authority qualifies requires careful examination of the foreign jurisdiction’s laws. For example, in the U.K., the Financial Conduct Authority is now empowered to regulate the commodity market, including futures and options on financial instruments, currencies and precious metals, but before legislative changes in 2001, a former self-regulating organization (the Securities and Futures Authority), regulated commodity futures and options on securities and foreign exchange.
Advice for Whistleblowers
Whistleblower reward procedures are complex, particularly with respect to related actions that may entitle a whistleblower to an award. The significant differences between the various U.S. whistleblower programs warrant a thoughtful assessment of which rewards program to pursue. An experienced whistleblower attorney can help navigate regulatory complexities and changing rules to ensure that a whistleblower gets the appropriate reward.
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- Related Post: CFTC Whistleblower Program has a Banner Year, but Challenges Remain (November 6, 2018)
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