Commodities & Futures Fraud

Overview

The mission of the U.S. Commodity Future Trading Commission (CFTC) is both to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options as well as to foster open, competitive, and financially sound futures and option markets.

The CFTC was first created in 1974 to assume regulation of commodity futures markets for products such as wheat, corn, and cotton from the U.S. Department of Agriculture. Over time, the designated contract markets (DCMs) regulated by the CFTC have grown to include those for energy and metals commodities (crude oil, heating oil, gasoline, copper, gold, and silver) as well as DCMs for financial products (such as interest rates, stock indexes, and foreign currency). More recently, the CFTC has assumed responsibility for regulation of virtual currencies and the oversight of options and futures trading involving Bitcoin and other cryptocurrencies.

In the aftermath of the 2008 financial crisis, which was caused in part by the unregulated swaps market, Congress expanded and enhanced the CFTC’s regulatory authority. Today the CFTC oversees swap dealers, swap execution facilities, swap data repositories, and other participants in the $400 trillion swaps market.

With so many different markets to monitor and so much trading activity to regulate, the CFTC followed the example of the SEC and established a formal whistleblower program with the goal of encouraging individuals with knowledge of fraud, unregistered offerings, market manipulation, and other violations of the Commodity Exchange Act to come forward and report that activity.

The CFTC Whistleblower Program

As part of its new powers under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC established a dedicated program to encourage and protect whistleblowers. The CFTC’s Whistleblower Program provides monetary incentives, as well as privacy, confidentiality, and anti-retaliation protections. If the CFTC (or related authorities) recover at least $1 million in penalties based on information voluntarily provided in a tip, complaint, or referral, the qualifying whistleblower who provided the information can receive an award of up to 30% of the penalties collected.

Common CFTC Violations

The Commodity Exchange Act covers a very broad range of financial activities. Examples of conduct reported through the CFTC Whistleblower Program include:

  • false and misleading financial reporting.
  • spoofing and manipulative trading activity involving options, futures, or swaps.
  • trading based upon restricted confidential information.
  • cheating or fraud involving customer funds deposited to trade futures, options, swaps, forex, retail commodity, or leveraged transactions.
  • trading by a firm or individual who is not properly registered.

As the swaps, options, designated contract, and virtual currency markets continue to evolve, the list of reportable and actionable violations only continues to grow.

Successful CFTC Whistleblower Cases and Awards

In July 2018, the CFTC announced the largest whistleblower payment in its history when it awarded $30 million to an individual whose information led to $367 million in sanctions against JPMorgan Chase for failing to properly inform clients about conflicts of interest behind certain investment recommendations. In announcing that award, the CFTC Chairman made clear: “I hope that today’s awards encourage anyone with knowledge of violations of the Commodity Exchange Act to come forward and become a whistleblower.”

Since issuing its first award in 2014, the CFTC has awarded over $85 million to whistleblowers — the amount and frequency of which continue to grow. CFTC enforcement actions associated with those awards have resulted in sanctions orders totaling more than $675 million. As the program becomes more established, all indications point to increased numbers of whistleblower tips, complaints, and referrals to the CFTC, with increased sanctions (and awards) in the years ahead.

How to Report Commodities & Futures Fraud

If you are considering submitting a tip, complaint, or referral to the CFTC, we urge you 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.

The most powerful protections against employer retaliation are only available to employees after they formally report misconduct to the CFTC. Our attorneys know the best strategies for protecting our whistleblower clients from harassment, demotion, or retaliation. We frequently work with leading employment attorneys from across the country to offer our clients the maximum protection available under the law.

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