August 10, 2020

Volume X, Number 223

August 10, 2020

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CFTC Adopts Amendments to Whistleblower Rule, Asserts Anti-Retaliation Authority

On May 22, 2017, the Commodity Futures Trading Commission (“CFTC”) announced the finalization of amendments to its whistleblower rules.  The most important change is the CFTC’s assertion of the authority to enforce Section 23(h)(1) of the Commodity Exchange Act (“CEA”), which prohibits retaliation against whistleblowers.  When it originally promulgated its whistleblower rules in 2011, the CFTC took the position that it “does not have the statutory authority to conclude that any entity that retaliates against a whistleblower commits a separate and independent violation of the CEA,” because while the CEA provides for an individual cause of action for retaliation, it does not explicitly provide for a CFTC cause of action or other enforcement mechanism.  The CFTC has now determined that its “2011 interpretation failed to fully consider the statutory context of Section 23 and other CEA provisions,” including the CFTC’s general authority to prosecute violations of the CEA.  The amendments also prohibit attempts to impede individuals from communicating with the CFTC about a violation of the CEA, including through enforcement of a confidentiality agreement.

The upshot is that in any case where an individual reports alleged violations of the CEA, either internally to their employer or externally, there now exists the potential for the CFTC to bring an independent enforcement action to remedy any allegedly improper retaliation in response to that reporting.  The anti-retaliation provision provides that an employer may not “discharge, demote, suspend, directly or indirectly threaten or harass” or in any other way “discriminate against, a whistleblower in the terms and conditions of employment” because the whistleblower lawfully provided information to the CFTC or provided assistance in any proceeding related to the provision of such information.  Notably, liability for retaliation does not depend on whether the whistleblower ultimately qualifies for an award.  With the CFTC asserting the independent authority to enforce the anti-retaliation provisions of the CEA, market participants may want to review their policies and procedures surrounding responding to reports of wrongdoing, including those policies and procedures intended to prevent retaliation.  Market participants should also review employment agreements to ensure there are no limitations that can be read as preventing potential whistleblowers from coming forward with information.

In addition to asserting authority to enforce the CEA’s anti-retaliation provisions, the CFTC also adopted a number of other changes which, generally speaking, eased the requirements for a whistleblower to be eligible for an award.  Easing the requirements for award eligibility may lead to more whistleblower complaints.  Given that the CFTC’s Whistleblower Office has been active in reviewing complaints and forwarding them to the CFTC Division of Enforcement for investigation, this may lead to an increase in Enforcement activity.

© 2020 Covington & Burling LLPNational Law Review, Volume VII, Number 146

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About this Author

Jason Grimes, corporate lawyer, Covington
Associate

Jason Grimes is an associate in the firm’s financial institutions and futures and derivatives practice groups. He advises clients on a wide range of regulatory matters, including compliance with various state and federal banking laws, and compliance with the Commodity Exchange Act.

Representative Matters

  • Advised a CFTC-registered swap dealer on compliance issues related to trading on swap execution facilities
  • Advised a major financial institution in connection with the treatment of non-deliverable...
202-662-5846
Anne M. Termine, Covington, securities litigation attorney
Of Counsel

Anne Termine is a member of the firm’s Global Futures and Derivatives Practice and leads the Derivatives Enforcement Team. She is also a member of the white collar defense and investigations practice. Ms. Termine advises clients in handling internal investigations and regulatory enforcement inquiries related to the derivatives markets and the cryptocurrency markets.

Prior to joining Covington, Ms. Termine was a Chief Trial Attorney in the U.S. Commodity Futures Trading Commission's (CFTC) Division of Enforcement, where she was responsible for investigating and prosecuting alleged violations of federal laws dealing with commodities, futures, options, swaps, and other derivatives. While in this role, Ms. Termine designed and led the CFTC’s landmark enforcement program involving the manipulation and false reporting of LIBOR, Euribor and TIBOR - critical, international benchmark interest rates. She spearheaded negotiations that resulted in settlements with nine international financial institutions, imposing penalties totaling over $2.8 billion. In managing this massive, global investigation, Ms. Termine was instrumental in developing relationships and coordinating with diverse foreign regulatory and law enforcement agencies throughout Europe and Asia, as well as with divisions of the United States Department of Justice and a coalition of over 40 State Attorneys General. She received the Chairman’s Award for Excellence, the CFTC’s highest award, for her work on and leadership in handling the LIBOR investigations.

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