CFTC Shows Whistleblowers the Money: Implications of Record $200 Million Award
Whistleblower’s Information and Assistance Led to an $800 Million Enforcement Action
On October 21, 2021, the CFTC awarded $200 million to a whistleblower for providing information that led the CFTC to evidence of wrongdoing concerning the manipulation of financial benchmarks used by global banks. This award is being paid based on an April 2015 CFTC enforcement action imposing an $800 million penalty on Deutsche Bank to settle charges of manipulation, attempted manipulation, and false reporting of LIBOR and Euribor.
In that enforcement action, the CFTC charged Deutsche Bank with aiding and abetting, at times, the attempts of traders at other banks to manipulate Yen LIBOR and Euribor. The CFTC Order found that Deutsche Bank, through its traders and benchmark submitters, engaged in this manipulative conduct over a more than six-year period to benefit cash and derivatives trading positions that were priced off of LIBOR or Euribor. Deutsche Bank allowed submitters and traders to prioritize profit motives over appropriate submission considerations, permitted a culture of trader self-interest to exist, and created conflicts of interest, which allowed the misconduct to occur.
The $200 million award that the CFTC announced on October 21st is the largest whistleblower award issued by the CFTC. On October 22, 2020, the SEC announced its largest award – $114 million, which consists of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another agency. In mid-September 2021, the SEC announced its second-largest award — $110 million, which consists of an approximately $40 million award in connection with an SEC case and an approximately $70 million award arising out of related actions by another agency. The other largest SEC whistleblower awards are $50 million or below.
This significant award will likely spur an increase in whistleblower tips, thereby further strengthening the CFTC’s ability to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets.
The CFTC Whistleblower Program Provides Great Bang for the Buck
The CFTC has granted approximately $323 million in whistleblower awards associated with enforcement actions that have resulted in monetary sanctions totaling more than $3 billion. The awards are not paid from appropriated funds. Instead, all CFTC whistleblower awards are paid from the CFTC Customer Protection Fund, which is financed through monetary sanctions paid to the CFTC in judicial or administrative actions enforcing the Commodity Exchange Act (CEA) and CFTC regulations.
Approximately 40% of current CFTC enforcement actions stem from whistleblower tips. In other words, the CFTC’s whistleblower program is significantly fortifying the enforcement of the CEA with minimal expenditure of taxpayer dollars.
Related Action Awards Can Yield Substantial Recoveries for Whistleblowers
The order announcing a $200 million award to a whistleblower states that a portion of the award is from actions brought by a federal regulator and a foreign regulator. A CFTC whistleblower is eligible for an award not only from the monetary sanctions collected by the CFTC in a covered judicial or administrative action, but also from the monetary sanctions collected in a related action. A related action is a judicial or administrative action that is brought by:
the Department of Justice;
an appropriate department or agency of the Federal Government;
a registered entity, registered futures association, or self-regulatory organization;
a State criminal or appropriate civil agency; or
a foreign futures authority
that is based on the original information that the whistleblower voluntarily submitted to the CFTC and led to a successful resolution of the CFTC judicial or administrative action.
When whistleblowers or their counsel apply for a CFTC whistleblower award, they should seek any related action award for which they qualify, including a related action brought by a foreign regulator. Note though that the CFTC will not provide a related action award if the whistleblower has already been granted an award by the SEC for that same action pursuant to the SEC’s whistleblower program.
The CFTC’s order awarding a whistleblower $200 million indicates that the award was reduced due to the whistleblower’s delay in reporting information to the CFTC. And indeed, the CFTC’s whistleblower rules provide that the CFTC will reduce an award where the whistleblower unreasonably delayed reporting CEA violations. To assess whether the delay is unreasonable, the CFTC considers:
(i) whether the whistleblower was aware of the relevant facts but failed to take reasonable steps to report or prevent the violations from occurring or continuing;
(ii) whether the whistleblower was aware of the relevant facts but only reported them after learning about a related inquiry, investigation, or enforcement action; and
(iii) whether there was a legitimate reason for the whistleblower to delay reporting the violations.
To maximize the prospect of recovery a 30% award, a whistleblower should report a CEA violation promptly.
Congress Should Increase the Cap on the Balance of the CFTC Customer Protection Fund
CFTC whistleblower awards are paid from penalties collected from CFTC enforcement actions. In particular, the sanction collected by the CFTC in any covered judicial or administrative action (an action resulting from a whistleblower’s tip) that is not otherwise distributed to victims of a violation is remitted to the CFTC Customer Protection Fund unless the balance of the Fund at the time the monetary judgment is collected exceeds $100,000,000. Any fines collected past the cap are remitted to the Treasury’s general fund.
As Senator Grassley recently pointed out in letters to CFTC nominees, “because of its great success, the whistleblower fund is at risk of being depleted . . . [and the] disbursement of larger rewards from a capped fund poses an impending threat to the CFTC whistleblower program’s ability to function.” If the cap on the balance of the fund is not increased, the CFTC will be unable to pay awards, which would curtail the CFTC’s ability to attract whistleblower tips that enable it to effectively and efficiently combat fraud. Congress should act swiftly to amend the Dodd-Frank Act to increase the cap.