CFTC Whistleblower Program Off to a Slow Start
The recently issued annual report of the CFTC Office of the Whistleblower for fiscal year 2017 (October 1, 2016 through September 30, 2017) indicates that the program is off to a slow start, which is likely attributable to weak enforcement of the Commodity Exchange Act. During fiscal year 2017, the CFTC brought just 49 enforcement actions.
“While the CFTC did not issue a whistleblower award in FY 2017, the Office appears primed to have its biggest year in the program’s history in FY 2018. According to the CFTC’s 2017 Agency Financial Report, the CFTC recognized a “contingent liability of $45.5 million for whistleblower awards that are expected to be paid in FY 2018.” Prior to FY 2018, the CFTC issued four awards totaling approximately $11 million.”
According to the CFTC Whistleblower Office annual report the CFTC did not pay out any whistleblower awards during fiscal year 2017 and received approximately 465 whistleblower tips on Form TCRs. Since the inception of the Whistleblower Program, the CFTC has issued four awards totaling approximately $11 million. The largest award to date is more than $10 million.
One way to read the report is that whistleblowers are coming forward with high-quality tips, but the CFTC is not acting on those tips. Indeed, acting on such tips could halt ongoing fraud schemes and prevent further harm to investors. As the CFTC whistleblower program has been ineffective, Congress should consider amending the Dodd-Frank whistleblower reward provisions to add a qui tam provision, i.e., to permit whistleblowers acting on behalf of the CFTC to prosecute commodities fraud. The qui tam provisions of the False Claims Act have been extraordinarily effective in combating fraud against the government. In particular, qui tam relators (whistleblowers) have enabled the federal government to recover approximately $30 billion.
CFTC Whistleblower Tips
The report reveals that whistleblowers disclosed a variety of fraud schemes to the CFTC Whistleblower Office, including:
virtual currency trading;
spoofing and other forms of disruptive trading;
protection of customer funds;
fraud involving foreign currency exchange; and
other off-exchange investment scams involving futures.
CFTC Whistleblower Office Protecting Whistleblower Confidentiality
The CFTC Whistleblower Office continues to take steps to protect whistleblower confidentiality. In particular, the Office considered 267 requests to produce documents from the investigation and litigation files of the Enforcement Division and found 16 requests to implicate whistleblower-identifying information. The Office worked with the Enforcement Division to remove whistleblower-identifying information or otherwise take steps to preserve whistleblower confidentiality.
CFTC Whistleblower Office Adopted New Rules to Strengthen CFTC Whistleblower Program
During fiscal year 2017, the CFTC approved amendments to its whistleblower rules that strengthen anti-retaliation protections for whistleblowers, prohibit “gag clauses” in employment agreements, and improve the CFTC Whistleblower Award Program.
Under the new rules, the CFTC can take enforcement action against an employer that “retaliates against a whistleblower by discharge, demotion, suspension, direct or indirect threats or harassment, or any other manner of discrimination” because the whistleblower provided “information to the Commission after reporting the information through internal whistleblower, legal or compliance procedures.” The anti-retaliation protections apply whether or not the whistleblower satisfies the conditions to qualify for an award.
The SEC Whistleblower Program has been successful and has enabled the SEC to recover nearly one billion dollars in monetary sanctions from wrongdoers, including more than $671 million in disgorgement of ill-gotten gains since 2011. Though the SEC has a far broader mission, the CFTC could use the whistleblower reward program more effectively to protect investors.