Approximately $123 million in awards has been awarded to whistleblowers since the Commodity Futures Trading Commission’s (CFTC) Whistleblower Program was created under the 2010 Dodd-Frank Act. The actions from these whistleblower’s actions have resulted in monetary relief of over $1 billion. In the period from October 2019 to September 2020 alone, the CFTC granted 16 applications for whistleblower awards, leading to approximately $20 million awarded to the qualified whistleblowers. The violations of the Commodity Exchange Act (CEA) reported through the whistleblower can include:
● manipulation of benchmarks and global foreign exchange rates,
● illegal off-exchange precious-metals transactions,
● disruptive trading of futures or swaps, including spoofing and false statements to the CFTC or National Futures Association,
● forex trading scams violating prior CFTC orders
● other types of fraud, market manipulations, and trade practice violations.
These CFTC enforcement actions have involved industries from precious metals to cryptocurrency and involved penalty amounts from over $1 million to $920 million.
The CFTC Whistleblower program was created by Congress to incentivize whistleblowers to report violations of the Commodity Exchange Act (CEA). A qualified whistleblower is eligible for a reward from a successful enforcement action from 10-30% of the collected proceeds due to the sanctions imposed. In the short time since the program was implemented, there have been over 405 enforcement actions by the CFTC, many of which come from information by whistleblowers that have resulted in rewards becoming available. Successful enforcement actions by the CFTC are publicly available because of the public Notices of Covered Actions. A Notice of Covered Action is posted when the CFTC obtains a final judgment or settlement that—by itself or together with other judgments or orders in the same action—results in more than $1 million in monetary sanctions. This serves as notice to anyone who submitted a tip via Form TCR that they could be eligible for an award.
The first Notice of Covered Action that was posted by the CFTC that could be claimed by a qualified whistleblower was for a settlement with “McGladrey & Pullen, LLP (M&P) and Altschuler, Melvoin & Glasser LLP (AMG) and partner G. Victor Johnson II (Johnson), a certified public accountant, for failing to audit properly Sentinel Management Group, Inc.” This resulted in losses to the customers of Sentinel when they later declared bankruptcy. The parties collectively paid $1.7 million in penalties and restitution.
The largest CFTC settlement so far has come from the settlement with JPMorgan Chase & Company “for manipulative and deceptive conduct and spoofing that spanned at least eight years and involved hundreds of thousands of spoof orders in precious metals and U.S. Treasury futures contracts.” The CFTC found that numerous traders at JP Morgan engaged in spoofing, which is “bidding or offering with the intent to cancel the bid or offer before execution.” This enforcement action resulted in JP Morgan paying $920.2 million in restitution, disgorgement, and civil monetary penalties under the settlement deal. There are also related actions for these violations taken by the SEC and criminal prosecution for wire fraud by the DOJ against JP Morgan, which will be settled with disgorgement and restitution payments.
Another recent large settlement from December 2020 was secured by the CFTC against Vitol Inc. for “foreign corruption and physical and derivatives trading in the U.S. and global oil markets, including attempted manipulation of two S&P Global Platts physical oil benchmarks.” This led to a settlement that required $95.7 million in civil monetary penalties and disgorgement from Vitol.
The CFTC also works with enforcement agencies from other jurisdictions to obtain enforcement. In the enforcement action against Alex Ekdeshman and Paramount Management, LLC, the CFTC had assistance from the United Kingdom Financial Conduct Authority, the Financial Services Commission Mauritius, and the Financial Services Board of the Republic of South Africa. This enforcement action was for defrauding retail customers by representing that they were conducting forex trading on their behalf while never actually opening the promised accounts and using the misappropriated funds for business expenses. This resulted in a court order for payment of over $2.4 million in restitution and penalties.
The CFTC has also taken enforcement action in the cryptocurrency industry. The CFTC, working with the CFTC Division of Enforcement’s Virtual Currency Task Force, brought an enforcement action against Blue Bit Banc, Blue Bit Analytics, Ltd., Mercury Cove, Inc. and G. Thomas Client Services for fraud and misappropriation of client’s funds. This is connected to another enforcement action with “a fraudulent scheme involving binary options and a virtual currency known as ATM Coin.” Binary options are “transactions that allow customers to make predictive trades as to whether the price of a certain commodity will rise or fall by a certain date and time[, which] . . . must be traded on a registered board of trade in order to be lawfully offered in the United States.” A court order required defendants to pay over $4.25 million in penalties and disgorgement.
Another action by the CFTC in the cryptocurrency industry is “against digital asset exchange operator Coinbase Inc. . . . for reckless false, misleading, or inaccurate reporting as well as wash trading.” Wash trading is “[e]ntering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position,” and it is prohibited under the Commodity Exchange Act. This enforcement action resulted in a court order requiring payment by Coinbase of penalties of $6.5 million as well as “to cease and desist from any further violations of the Commodity Exchange Act or CFTC regulations.”
The CFTC found that Global Precious Metals Trading Company, LLC (GPMTC) engaged in transactions of precious metals off-exchange, which is illegal under Dodd-Frank Act that requires “such transactions be executed on or subject to the rules of a board of trade, exchange, or commodity market.” GPMTC further defrauded customers regarding the transactions made and misappropriated customer’s funds. A court order required that GPMTC pay out $2.2 million in penalties, disgorgement, and restitution.
The CFTC found that Interactive Brokers LLC “failed to ensure that its employees followed established policies and procedures with respect to supervision of customer accounts,” which led to “account holders us[ing] their accounts at Interactive Brokers to defraud investors of millions of dollars” Interactive Brokers settled with the CFTC to pay over $12 million for these violations.
These are only a few examples of the CFTC enforcement actions that have been taken in the past 11 years. For each of these actions, including the other hundreds on the CFTC site, if a qualified whistleblower provided the information, they can claim a reward equal to 10-30% of the total penalty. These numerous enforcement actions across various industries show that the CFTC program has been successful in incentivizing whistleblowers to report violations and help the CFTC regulate the Commodities market.