Establishment of the CFTC Whistleblower Program
In 2010, Congress passed the major financial reform law, the Dodd–Frank Wall Street Reform and Consumer Protection Act.
The sweeping act was passed in response to the financial collapse of 2008. It established both the CFTC and SEC Whistleblower Programs, recognizing that insiders are essential to properly police the commodities and securities markets. The Dodd-Frank Act mandates both monetary awards and anti-retaliation protections for whistleblowers. Whistleblowers who voluntarily provided original information to the CFTC could qualify for awards in the millions of dollars and are legally protected from retaliation from their employer.
The Dodd-Frank Act required the CFTC to establish an Office of the Whistleblower to oversee the whistleblower program. After a delay in instituting the program, the CFTC issued its first whistleblower award in May 2014. The agency awarded $240,000 to a whistleblower who provided valuable information about violations of the Commodity Exchange Act.
Growth of CFTC Whistleblower Program
The CFTC Whistleblower Program has grown tremendously in the decade since it was established. For example, in fiscal year 2020, the CFTC received over 1,000 formal whistleblower complaints, dwarfing the 58 complaints received in the program’s first full year. In fiscal year 2020, the program also set a record for the number of whistleblower award claims received.
This growth has caused some issues for the program, however. Awards are paid out of the CFTC Customer Protection Fund, which is entirely financed through sanctions paid by commodity fraudsters. The Fund has a strict cap on how many sanctions may be deposited into the fund at once. The cap, which was instituted with the founding of the program in 2010, does not sufficiently accommodate the exponential growth of the program.
This has led to financial crises for the CFTC Whistleblower Program. In July 2021, President Biden signed the CFTC Fund Management Act into law. The Act saves the program from financial collapse by creating a separate account specifically for the operations of the CFTC Office of the Whistleblower.
More reforms are needed, however, to ensure the continued success of the CFTC Whistleblower Program.
Violations Covered by CFTC Whistleblower Program
The CFTC Whistleblower Program seeks information about violations of the Commodity Exchange Act (CEA) and CFTC regulations.
The CFTC oversees the U.S. derivatives markets, including futures, options, and swaps. Types of frauds which the CFTC seeks information on include fraud, false reporting, disruptive trading practices, misappropriation, price manipulation, accounting violations, registration violations, failure to maintain or produce required records, and many others.
In recent years, the CFTC Office of the Whistleblower has posted five separate Whistleblower Alerts each related to a specific type of fraud potential whistleblowers should be on the lookout for. The types of fraud covered are spoofing, violations of the Bank Secrecy Act, insider trading, corrupt practices, and virtual currency fraud.
Cryptocurrency and the CFTC Whistleblower Program
Cryptocurrency fraud is an emerging area of enforcement for the CFTC. When a virtual currency is used in a derivatives contract or when fraud or manipulation involves a virtual currency traded in interstate commerce, the CFTC has jurisdiction over the matter.
In 2019, the CFTC Whistleblower Office posted a Whistleblower Alert telling individuals to be on the lookout for virtual currency fraud. The alert explains that individuals can qualify for whistleblower awards for reporting virtual currency fraud to the CFTC.
Types of cryptocurrency fraud which the CFTC seeks information on include price manipulation (like pump-and-dump schemes) involving virtual currencies, pre-arranged or wash trading of virtual currencies, virtual currency futures or option contracts or swaps traded on an unregistered domestic platform or facility, and virtual currency futures or option contracts or swaps traded on an unregistered domestic platform or facility.
Blowing the Whistle to the CFTC
Anyone can qualify as a whistleblower under the CFTC Whistleblower Program. An individual does not need to be a company insider to blow the whistle. Market observers, investors, customers, and fraud victims can all be whistleblowers. Furthermore, an individual does not have to be a U.S. citizen or U.S. resident to qualify as a CFTC whistleblower. The only requirement to become a whistleblower is voluntarily providing original information about a violation of the CEA.
It is best practice to consult with an experienced whistleblower attorney before blowing the whistle to the CFTC. Doing so helps ensure that a whistleblower is fully protected from retaliation and qualifies for the largest award possible.
To formally blow the whistle to the CFTC a whistleblower must disclose information related to a potential violation of the CEA on a Form TCR. A whistleblower should ensure that the information provided in a Form TCR is specific, credible, and timely. Experienced whistleblower attorneys can assist in properly filling out a Form TCR. Upon CFTC staff’s request, the whistleblower must provide certain additional information.
CFTC Whistleblower Rewards
A central element of the CFTC Whistleblower Program is that it offers monetary rewards to qualified whistleblowers. Whistleblower rewards have proven to effectively incentivize whistleblowing and to help spread public awareness of whistleblower programs.
CFTC whistleblowers are entitled to an award when they voluntarily provide information that leads to a successful enforcement action resulting in monetary sanctions exceeding $1 million. Awards are for 10-30% of the funds collected by the government in the action.
Whistleblower must submit an award application in order to receive an award. The CFTC posts a Notice of Covered Action (NCA) for every enforcement action which resulted in over $1 million in sanctions. A whistleblower has 90 days from when a NCA is posted to submit an award application (Form WB-APP).
The CFTC evaluates a number of factors in determining the exact award percentage to grant a whistleblower. These include the timeliness of the disclosure, the degree of further assistance provided by the whistleblower, the law enforcement interest in the case, and the whistleblower’s culpability in the violations.
In addition to awards for CFTC enforcement actions, the CFTC Whistleblower Program offers whistleblower awards for Related Actions carried out by other agencies. A Related Action is an enforcement action brought by another agency that is based on the same information provided to the CFTC by a whistleblower. Related Action awards are also for 10-30% of the funds collected in the action. The CFTC does not post NCAs for Related Actions and it is thus up to the whistleblower to determine if there are eligible Related Actions. Working with an experienced whistleblower attorney can help with this process.
Since issuing its first award in 2014, the CFTC has awarded approximately $123 million to whistleblowers. The single largest award issued by the CFTC was a $30 million award granted to a whistleblower in 2018. According to that award order, the CFTC opened an investigation following the whistleblower’s disclosure, the whistleblower “provided ongoing, extensive and timely cooperation” throughout the investigation, and the whistleblower did not participate in the violations.
CFTC Whistleblowers are entitled to the anti-retaliation protections found in the Dodd-Frank Act. These protections prohibit employers from retaliating against (through termination, lowered performance reviews, or other forms of discrimination and harassment) employees who report possible violations to the CFTC.
Whistleblowers have access to jury trials in U.S. district courts. Whistleblowers who were retaliated against can obtain back pay, special damages, and attorney fees and costs. There is a two-year statute of limitations and mandatory arbitration is prohibited.
One of the key elements of the program is that it offers confidentiality to whistleblowers. Except in rare and specific situations, the agency will not publicly disclose any information that could reasonably identify a whistleblower. Whistleblowers can also anonymously make a disclosure to the CFTC; hiring a whistleblower attorney can help aid in this process.
Frequently Asked Questions
CFTC whistleblowers who confidentially reports violations of the Commodities Exchange Act (CEA), and whose information provided in the Form TCR is specific, credible, and timely may be eligible for a whistleblower award. The whistleblower can be a US or foreign citizen, as long as their information leads to a successful enforcement action resulting in monetary sanctions exceeding $1 million.
The types of violations covered under the CFTC whistleblower award program include general fraud, disruptive trading practices, failure to maintain or produce required records, misappropriation, price manipulation, registration violations, false reporting, and accounting violations among many others.
Established by Congress in 2010 with the passage of the Dodd-Frank Act, the CFTC whistleblower award program provides rewards and anti-retaliation protection to individuals with original information about potential violations of U.S. commodities laws. The CFTC issued the first award in May 2014 ($240,000) to a whistleblower who provided valuable information about violations of the Commodity Exchange Act.