The Commodity Futures Trading Commission (CFTC) recently released its Annual Report on the Whistleblower Program and Customer Education Initiatives for fiscal year (FY) 2019. The report, which details the operation of the whistleblower program and the CFTC’s initiatives to educate consumers about fraud or other violations of the Commodity Exchange Act (CEA), showed that during FY 2019, the CFTC awarded more than $15 million in five whistleblower awards. These whistleblowers had provided information that prompted the CFTC to open an investigation and/or provided substantial assistance to the CFTC during the course of the investigation. The report results serve as a reminder to energy companies to review and assess their compliance programs and policies to ensure that employees are encouraged to bring compliance concerns to management’s attention, and that such concerns are addressed in a timely manner.
Under the CFTC’s whistleblower program, a whistleblower who voluntarily provides the CFTC with original information (i.e., derived from the whistleblower’s independent knowledge or analysis) about a violation of the CEA will receive a monetary award if the information provided either leads to the successful enforcement of a CFTC action and results in monetary sanctions of more than $1 million (a Covered Action) or leads to the successful enforcement of a related action. 7 USC § 26(a), (b). Awards range from 10% to 30% of the monetary sanctions collected in a Covered Action or related action and are determined by the CFTC based on, among other things, the significance of the information to the success of the enforcement action, the assistance provided by the whistleblower in the enforcement action, and the CFTC’s interest in deterring future violations. 7 USC § 26(b), (c)(1).
Whistleblowers to the CFTC enjoy statutory protection from retaliation by their employers, enforceable in federal district court. 7 USC § 26(h)(1). Whistleblower reports are also kept confidential unless disclosure is required by a public enforcement proceeding, though the CFTC may disclose, subject to confidentiality, to another federal or state agency or a registered entity or self-regulatory organization to aid in enforcement or customer protection. 7 USC § 26(h)(2).
The CEA requires the CFTC to provide an annual report to Congress on its whistleblower program and its customer education initiatives.
Whistleblower Trends and Notable Cases
Over the last year, the CFTC posted 31 notices of Covered Actions and issued five whistleblower awards that ranged from $1.5 million to $7 million. It issued 106 final orders that addressed 134 whistleblower award applications, most of which were denied because they did not relate to a previously filed complaint or a Covered Action. In comparison, in FY 2018, the CFTC also posted 31 notices of Covered Actions, received 50 award applications, and granted awards on five applications totaling $75 million.
Though the CFTC does not disclose the identity of whistleblowers or the enforcement actions in which whistleblowers received awards, the CFTC’s report on the whistleblower claims provided the following details about the FY 2019 awards:
- $2 million award for providing an independent analysis of unspecified market data that led to successful enforcement by both the CFTC and another federal regulator.
- $1.5 million award for providing information that led to a CFTC investigation and for subsequent substantial assistance in the investigation. This award was also based on a related action brought by another federal regulator. The CFTC also noted that the whistleblower’s attempt to report concerns internally before reporting to the CFTC weighed in favor of a higher award.
- $2.5 million award for providing documents, statements, and analyses that caused the case to be opened and led to its successful resolution, which the CFTC noted would have been higher but for the whistleblower’s delay in reporting the information to the CFTC.
- $2 million award to joint whistleblowers for providing significant information that prompted the CFTC to open an investigation, sitting for multiple interviews, and producing numerous documents that formed the basis of the CFTC’s investigation.
- $7 million award for information that led the CFTC to open an investigation. The CFTC noted that while some of the information provided by the whistleblower proved inaccurate, the relevant information still led the CFTC to investigate and find a violation of the CEA.
The CFTC received 455 formal tips and complaints during FY 2019, as compared to 760 in FY 2018, 465 in FY 2017, and fewer than 300 in each prior year. The CFTC surmised that the spike in FY 2018 resulted from increased popular interest in virtual currencies and related CFTC publicity. The CFTC also received 102 nonwhistleblower tips and complaints and 35 from the US Securities and Exchange Commission.
Since the inception of the whistleblower program in 2011, the CFTC has issued 14 whistleblower awards totaling $100 million from a recovery of more than $800 million related to the complaints. Funds used to pay awards come from monetary sanctions collected by the CFTC in enforcement proceedings. The increase in whistleblower awards emphasizes the importance that companies—including those in the energy industry—review and assess their compliance programs and policies to ensure that they encourage employees to bring compliance concerns to management’s attention and that concerns are addressed in a timely manner commensurate with their significance.