The pro bono team at Kohn, Kohn and Colapinto has taken the lead in urging Congress to fully support the Commodity Futures Trading Commission (CFTC) Whistleblower Program. Our firm has worked directly with the Congressional offices responsible for oversight and funding of the CFTC’s Whistleblower Office in order to insure that the program will continue to be an immense success.
In April 2021, KKC, working closely with the National Whistleblower Center, helped put together a coalition of whistleblower advocacy groups to submit a formal letter to Congress warning that “the Fund has run out and the CFTC has started delaying the processing of whistleblower cases due to a lack of funds and the CFTC Office of the Whistleblower might be forced to furlough staff. This leaves commodities whistleblowers, many of whom have lost their jobs and careers, in an extremely precarious and uncertain position.” KKC also obtained support from former clients to directly reach out to key Congressional offices to explain the importance of fully supporting whistleblower reward laws
The Commodity Futures Trading Commission (CFTC) Whistleblower Program has been an immense success. Through the program, the CFTC has granted over $300 million in whistleblower awards associated with enforcement actions that have resulted in monetary sanctions totaling more than $3 billion. As recently noted by CFTC Commissioner Dawn Stump, “the program effectively serves its intended purpose of incentivizing people with knowledge of potential violations of the Commodity Exchange Act (CEA) or the Commission’s rules to report that information to the Commission to investigate as appropriate.”
This success has caused financial problems for the program, however. Due to a cap placed on the program’s fund, the program is facing a funding crisis. Whistleblower advocates warn that without Congressional action, this funding issue will undermine the success of the CFTC Whistleblower Program. While President Biden signed a bill in July 2021 offering a short-term fix to the issue, longer term solutions are still needed.
Establishment of Program
The CFTC Whistleblower Program was established in 2010 with the passage of the Dodd-Frank Act, a sweeping Wall Street reform bill passed in response to the financial collapse of 2008.
Under the Dodd-Frank Act, CFTC whistleblowers are entitled to a monetary 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. The Dodd-Frank Act established a CFTC Whistleblower Office to oversee the whistleblower program.
CFTC whistleblower awards are paid entirely out of the Customer Protection Fund (CPF), which was established alongside the whistleblower program. The CPF is entirely financed through sanctions obtained by the CFTC as the result of whistleblower disclosures. The CPF also funds the operating expenses of the CFTC Whistleblower Office.
At the establishment of the CFTC Whistleblower Program, Congress passed a $100 million cap on the CPF. When sanctions collected in whistleblower cases exceeded this cap, the funds were deposited into the U.S. Treasury instead of the CPF.
Growth of Program
Originally, the cap on the CPF did not pose any problems due to the limited amount of whistleblower awards paid out by the CFTC over the first few years of the program’s existence. Over the last few years, however, the amount of whistleblower tips received by the program, and correspondingly the amount of whistleblower awards granted by the program, have grown immensely.
For example, in fiscal year 2020 the CFTC received over 1000 formal whistleblower complaints, dwarfing the 58 complaints received in the program’s first full year. In 2021, Senator Chuck Grassley (R-IA) remarked that “the CFTC whistleblower program has become far more successful than Congress imagined when we set it up back in 2010.”
The immense growth of the CFTC Whistleblower Program has proven to be incompatible with the $100 million cap on the CPF that has remained unchanged since the program was established. The increasing size and quantity of sanctions collected in connection with successful whistleblower disclosures have led to larger reward disbursements, which risk depleting the fund before it can be replenished.
In February 2021, Senator Grassley stated that “the risk of a cash shortage is so great, the commission recently told my office it’s temporarily paused review of some cases that could wipe out the Customer Protection Fund used to pay whistleblowers.”
In April 2021, a collection of whistleblower advocacy groups explained in a letter to Congress that “the Fund has run out and the CFTC has started delaying the processing of whistleblower cases due to a lack of funds and the CFTC Office of the Whistleblower might be forced to furlough staff. This leaves commodities whistleblowers, many of whom have lost their jobs and careers, in an extremely precarious and uncertain position.”
The whistleblower groups letter further states that “the low cap on the CFTC Fund is arbitrary and was set at a time when the incredible success of the CFTC program was unforeseen. These low expectations should not hinder the success of the program or dissuade whistleblowers from providing critical information that enables the CFTC to protect investors and promote the integrity, resilience, and vibrancy of the derivatives markets.”
CFTC Fund Management Act
In response to the CFTC Whistleblower Program’s funding crisis, a bipartisan group of Senators, Chuck Grassley (R-IA), Maggie Hassan (D-NH), Joni Ernst (R-IA), and Tammy Baldwin (D-WI), introduced the CFTC Fund Management Act on February 24, 2021.
As originally written, the Act raised the cap on the CPF to $150 million and established a separate fund to finance the operations of the CFTC Whistleblower Office. At the time of the bill’s introduction, Senator Grassley stated “we can’t allow this program to become a victim of its own success. Congress has to pass this bill now to ensure that the CFTC whistleblower program remains solvent and can continue to grow.”
The bill was widely supported by whistleblower advocates. A coalition of whistleblower advocacy groups led by the National Whistleblower Center sent a letter to Congress demanding the passage of the bill. “Please take this important first step to improve the already highly successful program and protect whistleblowers,” the letter states. “Act now, do not let the CFTC program fall victim to its own success.”
On July 6, 2021 President Biden signed an amended version of the CFTC Fund Management Act into law, temporarily saving the CFTC Whistleblower Program from financial collapse. The amended version of the Act temporarily established a separate fund for the operations of the program but did not raise the cap on the CPF.
Whistleblower advocates applauded the passage of the bill. “President Biden’s swift action on the CFTC Fund Management Act demonstrates the power of bipartisan collaboration and the value of whistleblowers and their advocates,” said Siri Nelson, Executive Director of the National Whistleblower Center. “I am so happy that both Congress and the President listened to the will of the people and saved this fantastic program from becoming, as Senator Grassley described it, ‘a victim of its own success.’”
Further Fixes are Still Needed
While the passage of the CFTC Fund Management Act temporarily saved the CFTC Whistleblower Program from financial collapse, longer-term solutions are still needed to ensure the continued success of the program. Whistleblower advocates continue to call for a raising of the cap on the CPF and point to a Reauthorization of the CFTC as an opportunity to address the funding crisis.
Senator Grassley continues to advocate for raising the cap on the CPF. On October 4, he sent letters to nominees for CFTC positions asking about their commitment to the agency’s whistleblower programs. One of the questions he asked the nominees was “Will you support a long-term solution to restoring the whistleblower fund and maintaining the program, such as increasing the cap of the whistleblower fund and allowing the office to use general funds?”