Whistleblowers who report fraud in commodity futures, options, and “swaps,” and other violations of the Commodity Exchange Act, can now receive substantial financial rewards from the Commodity Futures Trading Commission (CFTC). The CFTC Whistleblower program is similar to the SEC Whistleblower program created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Dodd-Frank).
The CFTC regulates commodity futures and option markets in the United States. Its authority expanded to include OTC derivatives, or “swaps,” markets through the Dodd-Frank law in 2010. The CFTC’s mission includes protecting “market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that are subject to the Commodity Exchange Act.”
As we have discussed before, Dodd-Frank was enacted in response to the 2008 financial crisis and the Madoff scandal. Inspired by the successes of the False Claims Act in attracting whistleblowers since 1986, Congress has now authorized a meaningful CFTC Whistleblower Program, as well as the new SEC Whistleblower Program.
Consulted by SenateU.S. Senate committee staff contacted our firm after reading about problems we had found with the House version of Dodd-Frank’s whistleblower provisions. As described in the SEC Whistleblower section, we knew from experience in representing whistleblowers that essential elements of an effective whistleblower were missing from the House bill.
We advocated that significant whistleblowers will come forward only with an enforceable right to a reward—not left to someone’s discretion–and a meaningful percentage of the monetary sanctions imposed. The final Dodd-Frank language incorporated these important changes that we urged.
CFTC and SEC whistleblowers now have a right to 10-30% of the monetary sanctions recovered as a result of a whistleblower’s original information that leads to a recovery of at least $1 million in sanctions. Dodd-Frank also established remedies for retaliation against whistleblowers.
Input on CFTC Whistleblower RulesIn 2011, both the CFTC and SEC received great pressure from potential defendants to weaken their draft whistleblower rules. We met with senior CFTC and SEC enforcement officials and staff as part of a small committee of whistleblower attorneys to discuss how to make the proposed whistleblower rules most effective. We also met with SEC Chairman Gary Gensler about improving the CFTC rules, just as we had met with each SEC Commissioner.
We advocated that the CFTC and SEC rules include more categories of whistleblowers who are eligible for rewards, in order to attract the most significant information about fraud. We also urged that the CFTC and SEC Commissioners refuse to require “mandatory internal reporting” through companies’ compliance programs, since experience has shown that too many violators will likely take action against employees who report internally first.
The final CFTC and SEC rules did broaden the categories of eligible whistleblowers, and they reward—but do not require–internal reporting within companies by whistleblower employees.