CFTC Whistleblowers Buoyed By Encouraging Annual Report

Whistleblowers in the commodity futures industry received encouraging news last month when the Commodity Futures Trading Commission (“CFTC” or “Commission”) issued its Annual Report.  The CFTC was created in 1974 to oversee U.S. derivatives markets, such as commodity futures, options, and swaps.  In its Annual Report, the CFTC reported that it had “filed 67 enforcement actions in FY 2014, initiated more than 240 new investigations, and obtained more than $3.27 billion in sanctions, including orders imposing more than $1.8 billion in civil monetary penalties and more than $1.4 billion in restitution and disgorgement, despite a three percent decrease in enforcement staff.”

The CFTC’s current Strategic Plan was released in February 2011 following the passage of the Dodd-Frank Act, which “gave CFTC unprecedented oversight responsibility of the swaps marketplace” and represented “approximately an eight times growth to the CFTC’s regulatory portfolio.”  The Report explains that “the Commission protects market participants and other members of the public from fraud, manipulation and other abusive practices in the commodities, futures and swaps markets. Its cases range from quick strike actions against Ponzi enterprises that victimize investors across the country, to sophisticated derivatives, segregation deficiencies, supervisory violations, manipulative and disruptive trading schemes in markets the Commission regulates including indexes, energy, interest rates, oil, gas, precious metals and agricultural goods.”

The CFTC’s success in FY2014 should encourage potential whistleblowers with information about violations of commodities-trading laws to come forward and share that information with the federal government, thereby protecting investors from unscrupulous actors.  The Dodd-Frank Act established the CFTC whistleblower program, which authorizes the CFTC to pay monetary awards to eligible whistleblowers who voluntarily provide the Commission with original information about violations of the Commodity Exchange Act that lead it to bring enforcement actions that result in more than $1 million in monetary sanctions.  Those awards will be between 10 and 30 percent of the monetary sanctions collected either in the CFTC action or the related action.  That means that had the agency’s 2014 enforcement actions come as a result of whistleblower tips, whistleblowers could have earned as much as $981 million for their information.  While the CFTC whistleblower program has not received much attention to date, this type of aggressive enforcement thrust should help convince employees that whistleblower tips are a potentially lucrative method to protect investors.