A recent whistleblower suit could impact a company’s deferred prosecution agreement (“DPA”) potentially leading to further investigation by DOJ and additional penalties.  

A whistleblower suit was recently filed in the New York State Supreme Court against Connecticut-based Freepoint Commodities alleging insider trading violations and retaliation. The lawsuit comes after Freepoint entered into a three-year DPA with DOJ in 2023 for FCPA violations. The DPA stemmed from an alleged conspiracy to bribe a state-owned company in South America. Under the DPA, Freepoint was required to pay over $98 million in criminal fines, substantively enhance its corporate governance and compliance program, as well as report to DOJ any subsequent felony violations of law.

Freepoint resolved a parallel civil enforcement action by the Commodity Futures Trading Commission (“CFTC”) in 2023 for charges that Freepoint engaged in unlawful misconduct to obtain non-public competitive fuel oil cargo bidding information as well as confidential market intelligence regarding shipping and negotiation activities. The CFTC ordered Freepoint to pay a civil monetary penalty of $61 million and disgorgement of over $30 million. The settlement with the CFTC acknowledged and credited a portion of the criminal fine and forfeiture made by DOJ.  

Whistleblower Suit

A former Freepoint senior analysist, Andrew Martin, alleges in his whistleblower suit that two Freepoint superiors urged and pressured him to conduct illegal insider trading by using proprietary information. According to the complaint, Martin claims that two senior executives attempted to maximize company profits by engaging in market manipulation schemes to acquire non-public information from producers and refiners of oil and gas, “pressur[ing] other Freepoint employees to steal and illegally disseminate proprietary copyrighted information.” The complaint indicates that these allegations occurred both before and after Freepoint entered its DPA with DOJ.

Martin reported concerns regarding the two relevant executives and their unethical behavior through internal channels, including raising his concerns to Freepoint’s CEO. The complaint goes on to state that Martin’s employment was terminated soon before an alleged scheduled site visit by the FBI to confirm Freepoint’s adherence with the DPA’s requirements. According to the complaint, Martin received positive feedback from superiors and peers for his work, although Freepoint identified “performance” as one of the grounds for the termination.  

Potential Implications

DPA Breach Risk  

Freepoint’s DPA requires the company to continue to cooperate with DOJ and other law enforcement and regulatory authorities as well as report misconduct and any felony violations. If misconduct or violations are discovered, the company also must pursue the appropriate remediation. DOJ references Freepoint’s cooperation in DOJ’s investigation and the remedial measures the company took as factors DOJ weighed when reaching the DPA resolution. Such remedial steps included, in part, Freepoint meaningfully improving its compliance program by implementing a process for reporting and investigating allegations of misconduct.

The nature of the recent whistleblower complaint, which could potentially demonstrate compliance failures – including inadequate remediation of the root cause misconduct and insufficient reporting and investigation processes – as well as retaliation concerns in terminating a compliance whistleblower, may ultimately impact Freepoint’s successful completion of its DPA. Specifically, the company’s ability to demonstrate it is taking the necessary steps to make robust enhancements to its compliance, reporting, investigation, and remediation processes may be undermined.  

Possible DOJ Actions

In light of the whistleblower suit, DOJ may determine to proceed with further investigation of the matter, which could expose Freepoint to additional scrutiny. Depending on the outcome of any further potential investigation, DOJ could levy additional penalties and fines on the company, including the extension of the DPA terms beyond 2026. To that end, while we may be seeing a shift away from the imposition of compliance monitors, it is possible that a confirmed DPA violation could be renewed grounds to justify requiring a compliance monitor when reassessing risk of recurrence.

Moreover, with Freepoint having already acknowledged the charges under the DPA for the bribery scheme as well as taken responsibility for the involved personnel, it may be difficult for the company to have much leverage or negotiating power if DOJ concludes the DPA was violated.  

Takeaways and Recommended Actions

While valuable for all companies, for those companies currently under a DPA, it is especially imperative to maintain heightened vigilance for any potential violations or misconduct, ensuring that the necessary steps are taken to remediate and disclose, as is appropriate. This may involve, for instance, maintaining open dialogue with prosecutors, considering proactive compliance audits, frequent evaluation of compliance program effectiveness, as well as reviewing and strengthening internal reporting mechanisms, investigation processes, and whistleblower protections.

Overall, robust whistleblower programs are essential as retaliation allegations could compound underlying violations. With DOJ’s shift from a “presumption” of a declination to a “clear path to declination,” companies may now be more inclined to report and voluntarily self-disclose. Further, with DOJ soliciting whistleblowers and encouraging whistleblowers to come forward with various awards (see our prior alerts here and here), companies will need to consider how this impacts prospective and historical issues, as evidenced with Freepoint.