On November 21, 2016, the CFTC released its annual enforcement results for FY 2016. According to the report, the agency filed 68 enforcement cases and obtained orders totaling approximately $1.3 billion in restitution, disgorgement, and penalties. In addition, the CFTC issued a whistleblower award of more than $10 million, marking the largest award since Congress created the CFTC Whistleblower Program in 2010.
In FY 2016, a majority of the CFTC enforcement actions related to Retail Investor Fraud (44%). Other notable areas of enforcement included:
Report and Recordkeeping (13%);
Illegal Off-Exchange Contacts/Failure to Register (12%);
Protection of Customer Funds and Financial Integrity (12%);
Market Manipulation/False Reporting (6%); and
Insider Trading/Misconduct by Employees against their Employers (6%).
High Impact CFTC Enforcement Cases
During the year, the CFTC had numerous high impact cases, including:
A federal court action against a trader and his company, Igor Oystacher and 3 Red Trading LLC, for allegedly spoofing and manipulation across five derivatives markets.
A $100 million action against JP Morgan Chase Bank, N.A. for failure to disclose certain conflicts of interest to clients of its wealth management business.
Actions against Citibank NA for attempted manipulation and false reporting relating to two major interest rate benchmarks, LIBOR and ISDAfix, resulting in $425 million in penalties.
Nine actions against registered swaps dealers for failure to report accurately and fully critical trading and market information and for recordkeeping violations.
Actions against fraudsters preying on retail customers, including the operators of illegal, off-exchange boiler rooms pushing precious metals and binary options scams.
CFTC Whistleblower Rewards and Bounties
In FY 2016, the CFTC Whistleblower Office issued the largest whistleblower award in its history, reflecting the continued growth and impact of the office.
Under the CFTC Whistleblower Program, whistleblowers may be eligible for monetary awards when they voluntarily provide the CFTC with original information about wrongdoing that leads the agency to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000. Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected.
On April 4, 2016, a whistleblower was awarded more than $10 million for providing key information that led to a successful enforcement action. By law, the CFTC is required to protect the confidentiality of whistleblowers and, as such, the agency did not disclose information that could directly or indirectly reveal this whistleblower’s identity. Despite this lack of information, the award suggests that the whistleblower assisted the CFTC in bringing an enforcement action that recovered between $33 and $100 million.
Also in FY 2016, the CFTC proposed regulations that would authorize the agency to take enforcement action for whistleblower retaliation and prohibit gag clauses in employment contracts that deter employees from providing information to the CFTC. These proposed enhancements are critical to the success of the CFTC Whistleblower Program and will send a strong signal to corporate whistleblowers that they can come forward without fear of reprisal.
Notably, the Sarbanes-Oxley Act also protects whistleblowers from retaliation by their employers for reporting violations of securities laws.