January 24, 2020
The Commodity Futures Trading Commission (CFTC) whistleblower program plays a critical role assisting the CFTC in protecting the nation’s financial markets. In December 2019, the CFTC announced a whistleblower award of over $1 million to a person who reported misconduct to a different regulator, which eventually led to a successful CFTC enforcement action. In January 2020, the CFTC announced it would consider claims for whistleblower awards related to a $1 million penalty for record keeping violations it imposed on Goldman Sachs.
From its origin as a sub-office of the Department of Agriculture responsible for regulating futures trading in wheat, corn, and cotton, today’s CFTC has evolved into the key federal regulator overseeing some of the country’s most complex financial industries, including the multi-trillion dollar swaps market and options and futures trading involving Bitcoin and other cryptocurrencies. As those markets have expanded, so has the CFTC. And the CTFC is showing that it means business when it comes to protecting open, competitive, and financially sound financial markets.
Based on the successful SEC program, the CFTC established its own formal whistleblower program several years ago. The goal of the CFTC whistleblower program has been to encourage individuals with knowledge of fraud, unregistered offerings, market manipulation, and other violations of the Commodity Exchange Act to come forward and report that activity.
Since making its first award in 2014, the CFTC has awarded approximately $100 million to whistleblowers in connection with enforcement actions that netted more than $800 million in CFTC fines and other recoveries.
The December 2019 announcement of yet another whistleblower award of over one million dollars shows the continued importance of whistleblowers to the CFTC’s mission. As we have noted before, the CFTC goes to great lengths to protect the identity of its whistleblowers – as it should – and the award announcements are typically short on specific facts. Nevertheless, the December 2019 announcement includes some important insights.
First, this whistleblower did not make a report directly to the CFTC. He or she initially made an internal report to his/her employer, then notified another regulator, which in turn referred the matter to the CFTC. The CFTC took the investigation from there.
Second, the whistleblower was rewarded for information that led the CFTC to uncovering a different serious violation. Once the CFTC was on to the bad actor, they brought the investigation to a final and successful conclusion. But the specific conduct reported by the whistleblower did not form the basis for the charges ultimately brought by the CFTC.
Third, the whistleblower filed a formal submission, known as a Form TCR, with the CFTC only after the investigation was completed. In a sign that the CFTC continues to encourage insiders to report information to regulators on a timely basis, the CFTC honored the whistleblower’s formal filing that came months after he or she made the initial report. And by “honored,” we mean the CFTC awarded more than $1 million to that person.
The CFTC carried its enforcement momentum into 2020, announcing it would consider whistleblower award claims related to a $1 million penalty imposed on Goldman Sachs & Co.
The CFTC fined Goldman Sachs for failing to maintain audio recordings of trading activities by its swaps dealers. CFTC regulations require that all swap dealer telephone calls be recorded. The CFTC also requires that companies like Goldman Sachs maintain records of communications relating to swaps trading, including the recorded telephone calls.
Here, the CFTC came to Goldman Sachs while conducting an unrelated investigation and directed Goldman to turn over copies of the telephone recordings. Eventually Goldman Sachs admitted it didn’t actually have copies of those recordings. In response, the CFTC imposed a $1 million fine and has invited persons who provided information leading to this successful result to claim a whistleblower award.
It is too soon to tell if the CFTC will award any whistleblower(s) a share of this $1 million penalty. But the fact that a company with the expertise and the resources of Goldman Sachs might cut corners when it comes to mandatory record keeping shows that those violations could happen anywhere.
In the meantime, all signs point to the CFTC taking record keeping violations seriously and being equally serious about paying awards to the whistleblowers who report them.
If you are considering submitting a tip, complaint, or referral to the CFTC, we urge to contact us for a free, confidential, consultation to discuss the CFTC whistleblower process. We can explain the option to file your tip, complaint, or referral anonymously through your legal counsel, as well as walk you through the additional steps the CFTC will take to protect the confidentiality of whistleblowers and their information.