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.
The Commodity Futures Trading Commission (CFTC) filed and settled charges on October 24 against Upstream Energy Services LLC (Upstream Energy) for acting as an unregistered futures commission merchant. The Commission’s order raises several important points for energy companies. First, while energy companies may view the Federal Energy Regulatory Commission (FERC) as their primary federal regulatory agency, certain types of transactions involving energy resources may fall under the purview of another regulatory authority, such as the CFTC. Second, a company that accepts and places futures and options order on behalf of another party must register as a futures commission merchant. Third, voluntary and full cooperation with an enforcement action can reduce greatly the nature and severity of any penalty sought.
President Donald Trump signed a pair of executive orders on October 9 that may limit the impact of an agency’s use of informal guidance documents. The executive orders express concern that agency guidance, which includes policy statements, memoranda, and letters, has become a backdoor for regulators to change the laws and expand their scope and reach.
A recent advisory published by the Commodity Futures Trading Commission’s Division of Enforcement and comments of the division director have highlighted the CFTC’s attention toward investigating potential violations of the Commodity Exchange Act (CEA) that involve foreign corrupt practices. On March 6, CFTC Director of Enforcement James M. McDonald addressed this very issue in remarks before the ABA National Institute on White Collar Crime. At the same time, the division issued an Enforcement Advisory providing guidance on how the CFTC will treat instances of self-reporting and cooperation concerning CEA violations that also involve foreign corrupt practices.
Morgan Lewis partner Brendan Kalb discusses Project KISS, an initiative designed by the US Commodity Futures Trading Commission (CFTC) to simplify regulations and practices as well as minimize the cost of regulations, with The Hedge Fund Law Report. The CFTC’s proposed amendments seek to codify existing CFTC staff advisory and no-action letter relief for commodity pool operators (CPOs) and commodity trading advisors (CTAs). Brendan says, “These changes take some of those time-consuming reviews off the desks of the CFTC and the Division of Swap Dealer and Intermediary Oversight. They definitely grease the wheels in that respect.”
Read the full The Hedge Fund Law Report article.
The Commodity Futures Trading Commission (CFTC) announced on September 28 that it has created an Insider Trading & Information Protection Task Force. The new task force is responsible for identifying and charging those who engage in insider trading or otherwise improperly use confidential information in connection with any market regulated by the CFTC. The task force is composed of members from the CFTC’s offices in Chicago, Kansas City, New York, and Washington, DC.
The Commodity Futures Trading Commission (CFTC) has delayed implementation of the reduction in the de minimis threshold by an additional year. Under the de minimis exception, a person is not considered to be a swap dealer unless its swap dealing activity exceeds an aggregate gross notional amount threshold. Currently, that threshold is set at $8 billion, and is subject to a phase-in period after which the threshold will be reduced to $3 billion. The phase-in period was scheduled to terminate on December 31, 2018, but on October 26, the CFTC issued an order extending the phase-in period by one year, terminating on December 31, 2019 instead of December 31, 2018. The CFTC previously extended the phase-in period by one year in October 2016, and at that time explained that the extension provides additional time for further information to become available to reassess the de minimis exception.
Shortly before breaking for the August recess, the US Senate voted to approve commissioners to both the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC), providing both agencies with enough commissioners for a functioning quorum. The Department of Energy Organization Act requires three commissioners to constitute a quorum at FERC, and the CFTC’s regulations similarly require three commissioners, although the CFTC can operate with fewer if there are not three members in office. Both the CFTC and FERC have been without three commissioners for months, preventing the agencies from carrying out any but the most basic items of regulatory business. The loss of quorum was particularly damaging on the policy front, as neither agency could move forward on many existing policy initiatives or push through many administration priorities.
Earlier this month, the US Supreme Court issued a ruling that imposed a five-year statute of limitations period in which disgorgement could be ordered by an administrative agency penalizing regulatory violations. Although the Court’s decision in Kokesh v. SEC arose in the context of an enforcement action initiated by the Securities and Exchange Commission (SEC), the Court’s decision may well be applied to disgorgement orders issued by either the Federal Energy Regulatory Commission (FERC) or the Commodity Futures Trading Commission (CFTC). However, additional litigation may be required to ensure that the disgorgement boundaries set forth by the Court in Kokesh are equally applied to FERC and CFTC enforcement actions seeking disgorgement from an energy market participant.