The US Commodity Futures Trading Commission has announced its third and largest whistleblower award to date – an award of more than $10 million – to a whistleblower who provided information that led to a successful CFTC enforcement action. By law, the CFTC is prohibited from disclosing any information revealing the identity of the whistleblower, including the name of the company penalized in the related enforcement action.
The CFTC expressed optimism that this sizeable award, announced on April 4, 2016, will prompt more whistleblowers to come forward. Aitan Goelman, director of the CFTC’s Division of Enforcement, stated that “an award of this size shows the importance that the Commission places on incentivizing future whistleblowers” to come forward with high quality information regarding Commodity Exchange Act (CEA) violations. Christopher Ehrman, director of the CFTC’s Whistleblower Office, echoed this sentiment, expressing hope that the multimillion-dollar award would lead to additional whistleblower tips. The two previous CFTC whistleblower awards were announced in May 2014 and September 2015 for $240,000 and $290,000, respectively.
In contrast, the SEC’s Whistleblower Program has paid out substantially more awards – over $57 million to 26 whistleblowers since 2011 – than its CFTC counterpart. In FY 2015 alone, the SEC issued awards to eight whistleblowers totaling more than $37 million. This disparity in awards between the two agencies has been attributed to differences in their size and scope, as well as the volume of enforcement tips received. For example, the SEC’s Whistleblower Program received 3,923 tips in FY 2015, compared to only 232 tips received by the CFTC’s Whistleblower Program over the same period.
Like the SEC’s program, the CFTC’s Whistleblower Program was created pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Section 748 of the Dodd-Frank Act amended the CEA to allow for the payment of monetary awards to eligible whistleblowers who voluntarily share information with or assist the CFTC with successful enforcement actions resulting in monetary sanctions greater than $1 million. Eligible whistleblowers may receive a total amount of between 10 percent to 30 percent of the monetary sanctions collected by the CFTC. The award is also related to monetary sanctions collected by other authorities in actions related to a CFTC action based on information obtained from a CFTC whistleblower. While European Union member states have adopted measures aimed at facilitating whistleblowing, they do not include financial incentives for whistleblowers similar to those provided for under the CFTC and SEC regimes.
The Dodd-Frank Act provisions also protect whistleblowers from retaliation for reporting CEA violations to the CFTC. The anti-retaliation rules prohibit employers from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower because of any legal act undertaken by the whistleblower under the CFTC’s whistleblower rules. These protections are generally afforded to any whistleblower who reasonably believes that the information the whistleblower is providing relates to possible CEA violations, whether the whistleblower is entitled to an award or not.
Key takeaways: a loud and clear message
The CFTC’s recent whistleblower award represents a sea change in the Commission’s Whistleblower Program, which until now has issued very few and relatively small awards to tipsters. Beating its prior record award by a factor of more than 30, the CFTC is sending a loud and clear message to commodities futures traders that it means to aggressively court tipsters who have information about possible violations of the CEA.
Those who trade in commodities futures should expect that greater financial incentives will draw more whistleblowers out of the woodwork and lead to more CFTC investigations. Further, companies and firms subject to the CEA’s jurisdiction should take steps to ensure that their compliance programs, internal hotlines, and anti-retaliation policies are functioning so as to identify, ferret out, and properly address complaints of alleged wrongdoing internally. Indeed, perhaps the greatest tool in assessing the efficacy of a compliance program is a sound monitoring and auditing program. And, to be sure, monitoring and auditing will not only improve your program, but may well ferret out issues before they rise to the level of a whistleblower bounty.
Find out more about this development and about the efficacy of your internal compliance program by contacting any of the authors.