CFTC Makes First Whistleblower Award to Compliance Officer

On March 14, the Commodity Futures Trading Commission (CFTC) announced a $1.25 million whistleblower award.  The award is not notable for its relatively modest size.  Rather, it is notable because it was made to an individual with compliance or internal audit responsibilities, and individuals serving this function are typically precluded from qualifying as whistleblowers under the CFTC Whistleblower Program.

Under CFTC Rule 21F-4(b)(4), individuals who serve in a compliance or internal audit role do not qualify as whistleblowers under the CFTC program unless one of the following three exceptions applies:

• “The whistleblower has a reasonable basis to believe that disclosure of the information to the Commission is necessary to prevent the relevant entity from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors.”
• “The whistleblower has a reasonable basis to believe that the relevant entity is engaging in conduct that will impede an investigation of the misconduct.”
• “At least 120 days have elapsed since the whistleblower provided the information to the . . . whistleblower’s supervisor, or since the whistleblower received the information, if the whistleblower received it under circumstances indicating that the entity’s audit committee, chief legal officer, chief compliance officer (or their equivalents), or the whistleblower’s supervisor was already aware of the information.”

The whistleblower responsible for this settlement satisfied the so-called 120-day safe-harbor exception because they raised their concerns internally and then waited more than 120 days to contact the CFTC after the employer took no meaningful remedial action.  This is the first CFTC award to a compliance officer under the safe-harbor exception.

In announcing the reward, CFTC Whistleblower Chief Brian Young provided more context for what is behind the whistleblower rules governing compliance personnel:

The whistleblower first reported internally, fulfilling job duties and putting the entity on notice of its wrongdoing.  The CFTC’s Whistleblower Program rewards employees with compliance and audit responsibilities who first raise violations internally and then contact the CFTC if the employer sits on its hands.

And CFTC Enforcement Chief Ian McGinley used the opportunity to trumpet the role of whistleblowers more broadly: “Insiders have some of the most valuable evidence about illegal activity in our markets.  Today’s award recognizes the risks they take in coming forward to the CFTC, as well as the role of their information in amplifying the CFTC’s enforcement efforts.”

While not as prolific as the SEC Whistleblower Program, the CFTC Program still has made $365 million in whistleblower awards over the past decade.  These have been associated with enforcement actions resulting in roughly $3.2 billion in recoveries.

So if you think you have information of potential commodities law violations and would like to speak to an experienced member of the Constantine Cannon whistleblower team, please do not hesitate to contact us for a free and confidential consult.