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N.D. Illinois Refuses To Expand Reach of Commodity Exchange Act Whistleblower Provisions

On October 22, 2018, the U.S. District Court for the Northern District of Illinois granted a Rule 12(b)(6) motion to dismiss a first-impression whistleblower retaliation claim under the Commodity Exchange Act (“CEA”).  Johnson v. Oystacher, No. 15-cv-02263.

Background

Plaintiff and Defendant went into business together in January 2011, with Plaintiff acting as Chief Risk Officer and Defendant handling the company’s volume futures trading.  They split ownership of the company by 10% and 90% respectively.  In December of 2012, Plaintiff testified in connection with the CFTC’s investigation of Defendant’s trading activities, stating he did not believe Defendant was engaged in improper trading.  Later, he took the opposite view, believing Defendant was engaged in “spoofing” (an unlawful trading practice).  In June 2013, Plaintiff allegedly demanded that Defendant either cease the trading activities at issue or stop trading completely.  Later the same month, Plaintiff was ousted from the company,  allegedly for “misrepresenting his capital contribution to [the company], using money from [the company] for personal use without authorization, and creating a phony [company] operating agreement.”  Plaintiff alleged that Defendant then threatened him and coerced him into relinquishing his 10% ownership interest by signing a settlement agreement, “the terms of which were meant to prevent him from disclosing to regulators information about [Defendant’s] illegal trading.”  Defendant then filed suit alleging he was retaliated against in violation of the CEA (among other claims, including RICO and state law claims) in connection with the foregoing confrontation and Defendant’s alleged attempt to prevent him from assisting the CFTC in its investigation into Defendant’s trading.

Rulings

The court granted Defendant’s motion to dismiss without prejudice.  It rejected Plaintiff’s argument “that the whistleblower protections afforded by the SEC should be imputed to the [CEA]” because the CEA protects “individuals who are retaliated against for providing information to the CFTC or for assisting in a CFTC action based upon or related to such information.”  The court found that Plaintiff failed to state a claim for relief under the CEA’s anti-retaliation provision because he was not retaliated against for providing information to the CFTC or assisting the CFTC in an investigation stemming from that information.  The court rejected Plaintiff’s argument that a new regulation, which “extend[ed] the [CEA’s] anti-retaliation protections to whistleblowers who report internally prior to providing information to the CFTC,” applied retroactively to his claim.  The court reasoned that Plaintiff did not “allege that he provided information to the CFTC or otherwise assisted it in an investigation or administrative action.  Thus, regardless of the regulator’s retroactive effect, his claim still fails.”  The court gave Plaintiff leave to plead a claim under a different theory.

Implications

This first-impression decision shows courts’ reluctance to expand the CEA whistleblower provisions beyond their plain import.

© 2018 Proskauer Rose LLP.

TRENDING LEGAL ANALYSIS


About this Author

Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm
Partner

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S....

312-962-3545
Stephen Gulotta, Corporate and Securities attorney, Mintz Levin, Law Firm
Member

Stephen is Managing Member of the New York office, and heads the Corporate Securities Practice in New York. He also serves on the firm’s Policy Committee and Lateral Hiring Committee.

Stephen represents both public and private companies in a broad range of domestic and international transactions, including mergers and acquisitions, public and private offerings of securities, venture capital and private equity investments, leveraged buyouts, recapitalizations, restructurings, joint ventures, and strategic alliances. He has counseled clients in diverse industries, including financial services, health care, telecommunications, consumer products, electronics, hospitality, and sports and entertainment.

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