On April 4, 2016, the Commodity Futures Trading Commission (“CFTC”) announced a $10 million whistleblower bounty, its largest to date.
Similar to a program administered by the Securities and Exchange Commission (“SEC”), CFTC whistleblowers are eligible for an award worth 10 to 30 percent of an enforcement penalty if they bring original information to the CFTC which leads to an enforcement action that nets more than $1 million in sanctions.
As with other CFTC and SEC whistleblower awards, details about the claimant and the unlawful conduct are required to be kept confidential in an effort to protect the whistleblower’s identity. While this confidentiality serves an important policy purpose, it also makes it difficult for the regulated community to understand the conduct at issue and improve compliance programs to guard against similar violations.
Nevertheless, the CFTC has identified the following types of unlawful conduct as representative of activities that could lead to awards for whistleblowers that come to the CFTC:
- fraudulent representations that persuaded someone to trade futures, options, swaps, forex or leveraged transactions;
- some type of cheating or fraud that occurred after depositing funds to trade futures, options, swaps, forex, retail commodity or leveraged transactions;
- a person or firm that should be registered under the Commodity Exchange Act, but is not;
- disruptive or manipulative trading activity in the futures, options or swaps markets; and
- the trading of futures options or swaps based upon confidential information by someone not allowed to use such information.
Retailers and consumer product companies often use swaps and other derivatives to hedge risks in interest rate fluctuation, foreign currency exposure or against swings in commodity prices that could impact their supply chains. The CFTC’s action provides a good opportunity for companies to revisit compliance systems to ensure they are state of the art, and that internal reporting systems provide a credible route for aggrieved employees to report potential misconduct. Many whistleblowers are hesitant to take their concerns to the government, and only do so after they believe that their employers’ internal systems have not satisfactorily resolved their concerns.