March 2, 2021

Volume XI, Number 61

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March 01, 2021

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CFTC Enforcement Division Reports Most Active Year to Date

On December 1, 2020, the U.S. Commodity Futures Trading Commission (“CFTC”) Division of Enforcement released its Annual Report, which details a “record-breaking” fiscal year 2020 (“FY 2020”), despite the challenges presented by the COVID-19 pandemic.

Notably, the CFTC filed a historic 113 enforcement actions—up from 69 filed in FY 2019, 83 filed in FY 2018, and an increase over the previous high of 102 filed in FY 2012. The chart below shows the breakdown of enforcement actions by category, and Appendix B of the Annual Report provides individual case citations.

CFTC Enforcement explained that “approximately 65% of the matters filed in FY 2020 involved commodity fraud, manipulative conduct, false reporting, or spoofing”—“some of the most pernicious forms of market misconduct.”

Central to the increase in enforcement activity in FY 2020 were the 56 retail fraud actions, the most brought by the CFTC in a fiscal year. Of those 56, a record seven involved digital assets, an area that CFTC Enforcement “continued to aggressively prosecute” and that CFTC Chairman Heath Tarbert has noted as an enforcement priority.

Another 16 of the enforcement actions involved spoofing and manipulative conduct. Penalties and fines associated with these 16 actions accounted for over 75% of the $1.3 billion in total monetary relief ordered in FY 2020. However, while this $1.3 billion total was the fourth largest in CFTC history, it was only a $7 million increase from FY 2019 and was markedly less than the record $3.2 billion in relief ordered in FY 2014.

In line with its stated prioritization of cooperative enforcement over the past three years, CFTC Enforcement reported its parallel efforts with criminal authorities and regulatory agencies in FY 2020, which were explained as “critical to deterring violators, punishing misconduct, preserving market integrity, and protecting market participants.” As in FY 2019, the CFTC brought 16 enforcement actions with parallel criminal filings. Additionally, the report highlighted the largest joint enforcement action filed in the CFTC’s history, involving 30 state financial regulators and alleging a $185 million elder fraud scheme. The report stated that “[t]he division looks forward to continued cooperation and coordination with enforcement counterparts on matters of mutual interest.”

CFTC Enforcement also reported that its whistleblower program “continued to experience significant advancement” in FY 2020, during which it granted 16 applications for whistleblower awards totaling approximately $20 million. CFTC Enforcement noted that it expects the program to continue to grow and that between 30% and 40% of ongoing investigations now involve a whistleblower component.

In addition to emphasizing certain quantitative results obtained in FY 2020, the report recognized qualitative efforts to provide more detailed guidance to market participants through the Enforcement Manual, which was introduced in FY 2019. Specifically, CFTC Enforcement issued its first guidance since 1994 outlining its consideration factors for civil monetary penalties as well its first publicly distributed guidance detailing consideration used when evaluating corporate compliance programs in connection with enforcement matters. Both guidance documents were issued in furtherance of the agency’s “dedicated approach to increased transparency.”

CFTC Enforcement stated that it will continue to focus enforcement efforts on four priorities: “(1) preserving market integrity; (2) protecting customers; (3) promoting individual accountability; and (4) coordinating with other regulators and criminal authorities on parallel matters.”

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© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume X, Number 344
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Peter Baldwin, Securities lawyer, Drinker Biddle
Partner

Peter W. Baldwin, a former federal prosecutor, defends clients facing white-collar criminal and internal investigations, securities enforcement actions, cybersecurity issues, and other complex civil and criminal litigation matters. Prior to joining Drinker Biddle, Pete spent over eight years as an Assistant United States Attorney in the U.S. Attorney’s Offices for the Eastern District of New York and Central District of California. In this role, he supervised all aspects of criminal investigation and prosecution, first as a member of the Major Frauds Section in the Central...

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Nicholas Wendland Attorney Chicago
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Nicholas A.J. Wendland represents and advises financial institutions in navigating securities, commodities and exchange regulations. Drawing on his extensive experience at FINRA and the New York Stock Exchange (NYSE), as well as in private practice, Nicholas assists his clients in understanding and complying with securities and commodities laws, as well as regulations and rules set by self-regulatory organizations. Nicholas’ in-depth understanding of complex financial products, global regulations, and the business and operation requirements of his...

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Natalie DeLave Litigation Attorney
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Natalie K. DeLave assists clients with various aspects of litigation, including legal research and the drafting of motions and other memoranda.

While in law school, Natalie interned for the Honorable Manish S. Shah of the U.S. District Court for the Northern District of Illinois and for the Honorable Robert L. Miller, Jr. of the U.S. District Court for the Northern District of Indiana. She was a summer associate at Drinker Biddle in 2017.

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