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CFTC Releases New Guidance Regarding Civil Monetary Penalties

Yesterday, the CFTC’s Division of Enforcement formally issued new guidance regarding the Division’s decisions to recommend the imposition of civil monetary penalties. According to the CFTC, “[t]he guidance memorializes the existing practice within the Division,” but “has now been incorporated into the Division’s Enforcement Manual.” CFTC, CFTC Division of Enforcement Issues Civil Monetary Guidance.

The announcement continues the CFTC’s commitment to providing market participants with greater transparency, as recently articulated by Commissioner Tarbert at the Commission’s December 10, 2019 open meeting. Last year, with the stated goal of providing transparency and clarity to the market around the Commission’s enforcement process, the CFTC made public for the first time its Enforcement Manual. The newly issued guidance, now included in the Enforcement Manual, supplements the guidelines previously released in 1994, and focuses on the following: (1) the gravity of the violation; (2) mitigating and aggravating circumstances; and (3) “other considerations.” CFTC Enforcement Manual at 30. The Division’s Manual provides that of these, the gravity of the violation “is the primary consideration,” and is determined by factors such as the amount and duration of violations, the respondent’s role in violations, harm caused by violations, whether the respondent acted intentionally or willfully, whether respondent benefitted from the violations, and the violations’ “impact on market integrity, customer protection, or the mission and priorities of the Commission.” Id. at 30-31.

Similarly, factors considered as part of mitigating and aggravating circumstances include any relevant post-violation conduct, respondent’s cooperation, whether a company had an effective compliance program, respondent’s prior misconduct, and any disciplinary action taken by a company. Finally, “other considerations” include “[t]he total mix of remedies and monetary relief to be imposed on the [r]espondent,” remedies and relief imposed in analogous cases, and “[c]onservation of Commission resources, including timely settlement.” Id. at 31.

While the publication of the guidance serves to further promote transparency, it does not provide particular detail into the Commission’s deliberation process in ultimately determining fines. Market participants have more visibility into the factors the Commission reviews in assessing fines; however, details around their weighting and importance are thin. It is clear the Commission remains committed to aggressively pursuing market participants that violate regulations. Just this month the Commission filed charges in a $20 million binary options and digital asset fraud scheme. In November 2019, the Commission settled charges with a market participant accused of manipulative trading activity for a record amount. The settlement order, citing the firm’s cooperation and remediation during the investigative process, required the firm to pay a total of $67.4 million.

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Nicholas Wendland Attorney Chicago
Counsel

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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Victoria Andrews, Drinker Biddle Law Firm, Legal Research Attorney, Philadelphia
Associate

Victoria L. Andrews assists attorneys with various stages of legal proceedings and trial preparation, including legal research, writing motions, and other legal memorandums. While in law school, she interned for the Honorable James F. Nilon, Jr. for the Delaware County Court of Common Pleas in Media, Pennsylvania.

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