CFTC Whistleblower Reward Lawyers

The CFTC Whistleblower Reward Program provides whistleblowers with a strong monetary incentive, as well as anti-retaliation protections, for reporting wrongdoing to the CFTC. This includes violations or fraud in connection with:

• Commodity futures;
• Commodity options;
• Swap trading markets;
• Derivatives; and

• Foreign corrupt practices.

On October 21, 2021, the CFTC awarded a whistleblower $200 million for providing information that led the CFTC to evidence of wrongdoing concerning the manipulation of financial benchmarks used by global banks. Approximately 65% of whistleblower cases filed at the CFTC involve charges of commodities fraud, market manipulation schemes, and spoofing. Whistleblower tips to CFTC have helped drive record-level enforcement activity.

Since 2014, the CFTC has issued more than $325 million in awards to whistleblowers. The largest CFTC whistleblower awards to date are $200 million, $45 million, $30 million, and $10 million. Whistleblower disclosures have enabled the CFTC to bring successful enforcement actions against wrongdoers with orders for more than $3 billion in monetary relief. See our recent post How to Report Swaps Manipulation or Swaps Reporting Violations and Qualify for a CFTC Whistleblower Award.

Call our CFTC whistleblower lawyers today at 202-930-5901 or contact us here to find out if you are eligible for a CFTC whistleblower award. A delay in reporting commodities fraud can potentially disqualify a whistleblower from recovering an award or can lower a whistleblower award, so call us today for a free consultation. We represent CFTC whistleblowers concerning a wide variety of market manipulation schemes.

Our experienced CFTC whistleblower lawyers are frequently quoted in the media about

whistleblower reward programs.  Recently, the Wall Street Journal quoted Jason Zuckerman in an article titled Senate Passes Bill to Fund CFTC Whistleblower Program, and quoted Matthew Stock, Director of our Whistleblower Rewards Practice, in an article titled CFTC Whistleblower Tips and Awards Fall After Record 2018.

Recently the Association of Certified Fraud Examiners published a profile of Matt Stock’s success working with whistleblowers to fight fraud:

CFTC Whistleblower Reward Program

Under the CFTC Whistleblower Reward Program, the CFTC will issue rewards to whistleblowers who provide original information that leads to CFTC enforcement actions with total civil penalties in excess of $1 million (see how the CFTC calculates monetary sanctions). A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.

Original information “leads to” a successful enforcement action if either:

1. The original information caused the staff to open an investigation, reopen an investigation, or inquire into different conduct as part of a current investigation, and the Commission brought a successful action based in whole or in part on conduct that was the subject of the original information; or
2. The conduct was already under examination or investigation, and the original information significantly contributed to the success of the action.

In determining a reward percentage, the CFTC considers the particular facts and circumstances of each case. For example, positive factors may include the significance of the information, the level of assistance provided by the whistleblower and the whistleblower’s attorney, and the law enforcement interests at stake.

Awards are paid from the CFTC Customer Protection Fund, which is financed through monetary collected by the CFTC in any covered judicial or administrative action that is not otherwise distributed, or ordered to be distributed, to victims of a violation of the CEA underlying such action.

Anonymous Whistleblowing to the CFTC

If represented by counsel, a whistleblower may submit a tip anonymously to the CFTC. In certain circumstances, a whistleblower may remain anonymous, even to the CFTC, until an award determination. However, even at the time of a reward, a whistleblower’s identity is not made available to the public.

The confidentiality protections of the CEA require the CFTC not to disclose information that “could reasonably be expected to reveal the identity of the whistleblower.”  According to a recent report of the CFTC Whistleblower Office, the Office takes steps to protect whistleblower confidentiality.  For example, in a recent fiscal year the Office considered 267 requests to produce documents from the investigation and litigation files of the Enforcement Division and found 16 requests to implicate whistleblower-identifying information.  The Office worked with the Enforcement Division to remove whistleblower-identifying information or otherwise take steps to preserve whistleblower confidentiality.

CFTC Whistleblower Awards

The table below identifies some of the largest CFTC whistleblowers awards:

Protections Against Whistleblower Retaliation

Whistleblowers are also afforded substantial protection against retaliation.  Specifically, an employer may not “discharge, demote, suspend, threaten, harass, directly or indirectly, or in any manner discriminates against, a whistleblower” for legally reporting wrongdoing. In the event that an employer retaliates against a whistleblower, the law provides for substantial relief. This may include reinstatement, back pay, and compensation for related expenses such as litigation costs and reasonable attorneys’ fees.

A whistleblower is entitled to this protection even if they do not receive a reward. The anti-retaliation provision applies to any whistleblower who possesses “a reasonable belief that the information the whistleblower is providing relates to a possible violation of the Commodity Exchange Act (CEA), or the rules or regulations thereunder, that has occurred, is ongoing, or is about to occur.”

The CFTC can take enforcement action against an employer that “retaliates against a whistleblower by discharge, demotion, suspension, direct or indirect threats or harassment, or any other manner of discrimination” because the whistleblower provided “information to the Commission after reporting the information through internal whistleblower, legal or compliance procedures.”  17 C.F.R. 165.20(b).

If you have suffered whistleblower retaliation, call the whistleblower retaliation lawyers at our firm at 202-262-8959.

CFTC Prohibits “Gag Clauses” in Confidentiality and Employment Agreements

The rules implementing the CFTC whistleblower program prohibit employers from taking steps to impede whistleblowers from communicating with the CFTC staff.  In particular, 17 C.F.R. § 165.19(b) provides:

No person may take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications.

This prohibition is critical to the success of any whistleblower program because companies often use overly broad confidentiality agreements to silence and punish whistleblowers.

Experienced CFTC Whistleblower Lawyers

The whistleblower lawyers at Zuckerman Law have substantial experience representing corporate whistleblowers in whistleblower protection and whistleblower rewards cases.

Our team of attorneys includes a licensed Certified Public Accountant and Certified Fraud Examiner whose experience working at a large audit firm enhances the firm’s to investigate complex fraud schemes and prepare effective submissions to the CFTC.  For a free, confidential consultation, click here or call us at 202-262-8959.

Violations of the CEA that Qualify for a CFTC Whistleblower Award

The largest CFTC whistleblower awards to date are $200 million, $45 million, and $30 million.  The main types of violations that may qualify for a CFTC whistleblower award include:

Spoofing

Spoofing is a form of market manipulation where traders artificially inflate the supply and demand of an asset to increase profits.  Traders engaged in spoofing typically place a large number of orders to buy or sell a certain stock or asset without the intent to follow through on the orders.  This deceptive trading practice leads other market participants to wrongly believe that there is pressure to act on that asset and “spoofs” other participants to place orders at artificially altered prices.

Spoofing affects prices because the artificial increase in activity on either the buy or sell side of an asset creates the perception that there is a shift in the number of investors wanting to buy or sell.  Spoofers place false bids or offers with the intent to cancel before executing so that they can then follow-through on genuine orders at a more favorable price.  Often, spoofers use automated trading and algorithms to achieve their goals.  According to a CFTC alert on spoofing related to CEA violations, the CFTC is concerned with conduct such as:

• manual and automated trading schemes that place and quickly cancel bids and offers in futures contracts in order to benefit other orders and/or positions;
• orders being quickly placed and canceled at or near the best bid or offer, especially if opposite-side orders are filled;
• multiple orders of the same size repeatedly and simultaneously being placed and canceled; and
• any scheme designed to cause prices to artificially move.

Examples of CFTC spoofing enforcement actions include:

• In November 2019, the CFTC imposed $67.4 million in sanctions against Tower Research Capital LLC, a proprietary trading firm, arising from a manipulative and deceptive scheme.  On thousands of occasions, three former Tower traders, placed orders to buy or sell futures contracts with the intent to cancel those orders prior to execution.  The traders often used an order splitter to enter several smaller, randomly-sized orders in an attempt to obscure their scheme from other market participants.  According to a CFTC press release, “[t]he traders engaged in this scheme to induce other market participants to trade against their genuine orders—by intentionally sending a false signal to the market that they wanted to buy or sell the number of contracts specified in the spoof orders and creating a false impression of supply or demand—so that the genuine orders would fill sooner, at better prices, or in larger quantities than they otherwise would.”
• In August 2021, a federal jury convicted Edward Bases and John Pacilio, two former Merrill Lynch traders, for engaging in a multi-year fraud scheme to manipulate the precious metals market.  According to a press release announcing the action, the two traders fraudulently pushed market prices up or down by routinely placing large “spoof” orders in the precious metals futures markets that they did not intend to fill.  After manipulating the market, Bases and Pacilio executed trades at favorable prices for their own gain, and to the detriment of other traders.  The DOJ’s Indictment detailed how Bases and Pacilio discussed their intent to “push” the market through spoofing in electronic chat conversations.
• In September 2020, JPMorgan Chase & Co. agreed to pay disgorgement of $920 million in parallel actions brought by the CFTC, DOJ, and the SEC engaging in manipulative trading of U.S. Treasury securities.  According to the SEC’s order, certain traders on J.P. Morgan Securities’ Treasuries trading desk placed genuine orders to buy or sell a particular Treasury security, while nearly simultaneously placing spoofing orders, which the traders did not intend to execute, for the same series of Treasury security on the opposite side of the market.  The spoofing orders were intended to create a false appearance of buy or sell interest, which would induce other market participants to trade against the genuine orders at prices that were more favorable to J.P. Morgan Securities than J.P. Morgan Securities otherwise would have been able to obtain.

Corrupt Practices

Although the SEC and DOJ are responsible for enforcing the FCPA, the CFTC can take enforcement actions to combat violations of the CEA connected to corrupt practices, including bribes or kickbacks paid to improperly influence government officials in connection with regulated activities such as trading, advising, or dealing in swaps or derivatives.  As explained in a March 6, 2019 CFTC Enforcement Advisory and public remarks by Director of Enforcement James M. McDonald at the ABA’s National Institute on White Collar Crime, the CFTC’s anti-fraud authority permits it to police foreign bribes where violations of the CEA carried out through foreign corrupt practices.  McDonald explained:

Companies and individuals engaging in foreign corrupt practices should recognize that this sort of misconduct might constitute fraud, manipulation, false reporting, or a number of other types of violations under the CEA, and thus be subject to enforcement actions brought by the CFTC.  Bribes might be employed, for example, to secure business in connection with regulated activities like trading, advising, or dealing in swaps or derivatives.  Corrupt practices might be used to manipulate benchmarks that serve as the basis for related derivatives contracts.  Prices that are the product of corruption might be falsely reported to benchmarks.  Or corrupt practices in any number of forms might alter the prices in commodity markets that drive U.S. derivatives prices.  We currently have open investigations involving similar conduct.

In December 2020, the CFTC exercised that authority by imposing a $95 million civil penalty to settle charges against Vitol Inc, for manipulative and deceptive conduct involving foreign corruption and physical and derivatives trading in the U.S. and global oil market.  The CFTC found that “Vitol committed fraud by making corrupt payments (e.g., bribes and kickbacks) to employees and agents of certain state-owned entities (SOEs) in Brazil, Ecuador, and Mexico to obtain preferential treatment and access to trades with the SOEs to the detriment of the SOEs and other market participants.”  The corrupt payments were concealed by funneling them through offshore bank accounts or to shell entities, and at times, issuing deceptive invoices for purported “market intelligence” or “sell support.”  The objective of these illicit payments was to secure unlawful competitive advantages in trading physical oil products and derivatives.

Trading on Material Nonpublic Information

The Dodd-Frank Act expanded the CFTC’s authority to police misappropriation of confidential information and insider trading in commodities markets.  Similar to the SEC’s Rule 10b-5, CFTC  Rule 180.1 prohibits manipulative and deceptive devices, i.e., fraud and fraud-based manipulative devices and contrivances employed intentionally or recklessly, regardless of whether the conduct in question was intended to create or did create an artificial price.

The fraud or manipulation must be in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity.  Examples of prohibited trading include:

• trading on material nonpublic information (MNPI) that was obtained by fraud or deception;
• trading on market-moving information that the source had a duty to protect;
• brokers front running customer orders or taking the other side of any customer order without consent; and
• improperly disclosing MNPI or using MNPI provided by a counterparty without the counterparty’s consent.

An example of the CFTC enforcing its prohibition against the misappropriation of MNPI is a September 29, 2016 enforcement taken against Jon P. Ruggles for engaging in fraudulent, fictitious, and non-competitive trades in crude oil and heating oil futures and options and RBOB gasoline futures on the NYMEX.  The CFTC’s order settling the charges requires Ruggles to disgorge ill-gotten gains totaling $3,501,306, imposes a civil monetary penalty of $1.75 million, and permanently bans him from trading and registering with the CFTC.  Ruggles, who was responsible for developing his former employer’s fuel hedging strategies and for executing the employer’s trades in certain NYMEX products, misappropriated the employer’s trading information for his own benefit in personal accounts that he controlled.

Benchmark Rates Manipulation

In a benchmark-rate-manipulation scheme, individuals seek to increase or decrease impartial global reference rates for their own financial gain.  This misconduct is typically associated with the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), benchmark-swap rates, LIBOR, Euribor, and other foreign interest-rate benchmarks.

On May 25, 2016, the CFTC ordered Citibank to pay $250 million for attempted manipulation and false reporting of USD ISDAFIX benchmark-swap rates.  According to a CFTC press release, Citibank traders “attempted to manipulate and made false reports concerning the USD ISDAFIX by skewing the Bank’s USD ISDAFIX submissions . . . in order to benefit the Bank’s trading positions at the expense of its derivatives counterparties.”   The CFTC uncovered numerous instances of Citibank’s USD ISDAFIX misconduct through the bank’s exotic traders’ instant messages.  In March 2008, one of Citibank’s exotics traders stated in separate instant messages to other market participants that “[I] moved the screen btw” and “[I] moved the screen to 183 on 2s10s…[One of Citibank’s swaps traders] is pretty good at it,” and “[I] push the 2s10s swap on the screen to 183.4, very proud of myself.”

How the CFTC Determines Whistleblower Awards

According to the CFTC’s Enforcement Manual, “[w]hen the CFTC obtains a judicial or administrative order that—by itself or together with judgments or orders in related CFTC enforcement actions or Related Actions brought by certain other entities—imposes monetary sanctions exceeding $1,000,000, then the order becomes a covered judicial or administrative action upon which the CFTC may pay out whistleblower awards. The WBO will then post a Notice of Covered Action, and whistleblowers may begin applying for awards.”

A recent CFTC order awarding $10 million to a CFTC whistleblower clarifies that the CFTC employs a flexible approach to weighing the positive and negative award criteria and no one factor is dispositive:

The analytical framework in the Rules provides general principles without mandating a particular result. The criteria for determining the amount of an award in Rule 165.9, 17 C.F.R. § 165.9, are not listed in any order of importance and are not assigned relative importance. Rule 165.9(b) provides a list of factors that may increase the award amount, and Rule 165.9(c) provides a list of factors that may decrease the award amount. However, the Rules do not specify how much any factor in Rule 165.9(b) or (c) should increase or decrease the award percentage. Not satisfying any one of the positive factors does not mean that the award percentage must be less than 30%. and the converse is true. Not having any one of the negative factors does not mean the award percentage must be greater than 10%. These principles serve to prevent a vital whistleblower from being penalized for not satisfying the positive factors. For example, a whistleblower who provides the Commission with significant information and substantial assistance such as testifying at trial and producing documents containing direct evidence of violations could receive 30% even if the whistleblower did not participate in any internal compliance systems. In contrast, in order to prevent a windfall, a whistleblower who provides some useful but partial information and limited assistance to the Commission may receive 10% even if none of the negative factors were present.

Key Rules Governing CFTC Whistleblower Award Eligibility