The CFTC Whistleblower Program

The CFTC is the U.S. Commodity Futures Trading Commission, which has a Whistleblower Program created by the Dodd-Frank Act. The CFTC has regulatory authority over future trading, subject to the Commodities Exchange ACT.

black whistle over white

The scope of the CEA has become increasingly complex over the years, now governing a wide range of commodities, including crude oil, gasoline, grains, oats, cotton, wheat, corn, heating oil, and financial instruments.

The CFTC also plays a role in addressing concerns regarding the corporate fraud which escalated and became public in 2008, particularly the large bank issues. In fact, the CFTC joined the government’s Executive Branch task force to help prosecute those accused of stealing millions through the sale of illegal foreign currency futures contracts.

The CFTC Whistleblower Program offers money to those who come forward to report violations of the Commodity Exchange act, and offers protections for those whistleblowers so they will not be retaliated against because of their actions. For a CFTC Whistleblower to be eligible for a monetary award, the information that person provides must lead to the successful enforcement of a Related Action which is brought by another governmental entity.

A Related Action is a successful judicial or administrative action brought by specific entities (such as the U.S. Department of Justice, the Federal Energy Regulatory Commission, the National Futures Association, foreign futures authorities and state criminal or appropriate civil agencies) which is based on the same original information which the whistleblower provided to CFTC.

Whistleblowers receive monetary awards when they voluntarily provide original information about any violations of the Commodity Exchange Act—when those violations lead to successful enforcement, and monetary sanctions in excess of one million dollars. No award will be given to the whistleblower if that person received an award from the U.S. Securities and Exchange Commission for the same issue. Notices for Related Actions are not posted by the CFTC—those who choose to become a whistleblower must monitor Related Actions on their own.

How Much Can A CFTC Whistleblower Receive?

A CFTC whistleblower can receive between 10 and 30 percent of the sanctions collected through the enforcement or Related Action. If there is more than one whistleblower, the total award which will be split between the whistleblowers is still between 10 and 30 percent—in other words, the more whistleblowers there are on a single action, the less money each one will receive. It is important to understand that it is not enough to simply submit a tip to the CFTC Whistleblower Program. In addition to submitting a tip which leads to an action against the offender, the whistleblower is also required to submit an award application once the Whistleblower Office releases the Notice of Covered Action, or once the Related Action ends in a judgment.

Are CFTC Whistleblowers Protected?

There are certain protections regarding confidentiality of the whistleblower’s identity, and employers of whistleblowers are not allowed to stop a would-be whistleblower from communicating with the Commission regarding potential violations of the Commodity Exchange Act. This means the employer is not allowed to enforce or threaten to enforce a confidentiality agreement or arbitration agreement with respect to communications with the CEA. Employers are also not allowed to fire, demote, suspend, threaten, harass (directly or indirectly) or discriminate in any way against a potential whistleblower because of a lawful act under the CFTC. If a whistleblower is retaliated against in any way by his or her employer, the person may sue the employer in federal court, plus the CFTC can also bring enforcement actions against an offending employer.

Things to Understand About the CFTC Whistleblower Program

It is important to understand that a whistleblower must provide information voluntarily—that is to say that the whistleblower must give information on their own, freely, without being forced to do so under a subpoena, or must give the information prior to the time the Commission sends the whistleblower, the whistleblower’s lawyer or the whistleblower’s employer a request for such information.

In other words, if the Commission sends you a demand, inquiry or request for information, then it is, essentially, too late for you to then offer the information as a whistleblower, expecting to receive the award associated with whistleblower information. If, however, you provided the information to the Commission prior to receiving a demand for the information, then your information will be considered voluntary, and you could be eligible for the whistleblower award.

You should also be aware that the information you are offering must be considered “original,” in that the Commission was not aware of the information prior to you giving said information to the them. This original information must have come from independent knowledge that you have—knowledge that is not available to the public—or from an independent analysis conducted by you, meaning you examined and evaluated information which could be available to the public, but which reveals information which is not widely known.

 

If the Commission happens to have received the same—or very similar—information from another source, your information will not be considered “original” unless you are able to show you were the first person to have the information. Further, as a general rule, “independent knowledge” does not include any information or communications which fall under attorney-client privilege or information obtained through legal representation of a client. This means an attorney may not obtain information from a client, then present that information to the Commission to obtain an award.

Amendments Made to the CFTC Whistleblower Program

As of July 31, 2017, the CFTC’s award claim review process is very similar to that of the SEC’s Whistleblower Program. As an example, the CFTC now has a Claims Review Staff who issues a Preliminary Determination which sets forth a preliminary assessment as to whether an award claim should be granted or denied. The whistleblower can contest this Preliminary Determination prior to the time the Commission issues a Final Determination. The anti-retaliation protections to the Whistleblower Program have been strengthened in an effort to add efficiency and transparency to the overall process of deciding who should receive a whistleblower award claim. In many ways, the re-worked whistleblower rules of the CFTC now mirror the U.S. Securities and Exchange Commission’s rules.

More Whistleblowers Coming Forward

The CFTC Whistleblower Program apparently works quite well since the agency paid out more than $45.5 million in whistleblower awards in 2017—more than four times the total amount paid out by the CFTC Whistleblower program up until 2017. The CTFC Protection Fund must be audited annually, to ensure the program stays on the straight and narrow, and records show that in 2017, there were 465 whistleblower reports submitted to the CFTC—a whopping 70 percent increase from 2016. SEC officials approve of the CTFC Whistleblower Program, calling it a “game changer.”

Sanctions collected from enforcement actions resulting from whistleblower information exceeded $560 million in 2017. It seems apparent that many more people are realizing the financial benefits of reporting wrongdoing to the CFTC. The typical types of activities which are reported by whistleblowers include market manipulation, Ponzi schemes, virtual currency trading, “spoofing,” false reporting, misrepresentations to customers regarding their accounts, fraud involving foreign currency, and other off-exchange investment scams involving futures.

The Beginning of the CFTC Whistleblower Program

 

The CFTC Whistleblower Program first began accepting tips in September 2012, receiving 58 tips in the first month. The number of tips has continued to steadily rise since that time. In the first four years, the CFTC paid out four awards to whistleblowers in connection to tips received, making its first payout in 2014 of $240,000, the second payout in 2015 of $290,000, the third payout in April 2016 of more than $10 million, and a fourth payout in July 2016 of $50,000. As you can see, 2017 was a banner year for whistleblower payouts.

Exclusions to Whistleblower Information

There are several categories of exclusions to the CFTC Whistleblower Program which can disqualify those who obtain information in the following manner(s):

  • Any information obtained illegally;
  • Any information obtained in a manner which violates criminal laws, both federal and state;
  • Any information from a source such as corporate filings, the media or the Internet—sources which are readily available to the public;
  • Any information obtained through a role as an officer, director, trustee, or when the information came from an investigation of the entity into potential violations of the law, and
  • Any information obtained through the whistleblower’s role as an internal audit employee or compliance professional.

Further, the whistleblower must believe that disclosure of the information is necessary to prevent significant levels of injury to the entity or investors, and the whistleblower must have a reasonable basis to believe the entity is engaging in conduct which would impede a misconduct investigation.

Why People Become Whistleblowers

Interestingly, misconduct at work is reported by employees who witness the misconduct more than half of the time. Further, more than half of those who reported the misconduct reported it within their company or organization, to a person in authority whom the employee trusted. Although whistleblowers are often portrayed as opportunistic employees who are either out for revenge, or only interested in the money, the majority of whistleblower believe in fairness and the greater good.

Most whistleblowers do not come to the decision lightly, rather they agonize over the choice as they want to be loyal to their employee, but also do not want illegal or immoral activities in their company to hurt innocent people. Rather than seeing their actions as disloyal to their company, many whistleblowers see the exact opposite—they believe that reporting company misconduct will ultimately make the company better, therefore they may not struggle with loyalty to the organization vs. moral beliefs.

Some factors which can determine whether a person will blow the whistle when they witness misconduct include the following:

  • If an employee feels their company encourages coming forward to report wrongdoing, and will protect them from retaliation, they are more likely to reports the misconduct.
  • Workers who are from a more interdependent society (Japan or China) are less likely to report misconduct in the workplace, while those from the U.S. are much more likely to report misconduct, as our society encourages independence.
  • Whistleblowers in general tend to have “intense” personalities, are more educated, and are at a higher salary level.
  • Whistleblowers have usually been with the company for a significant length of time, tend to be male, rather than female, and are typically described as extroverts.
 

The five traits most often seen in whistleblowers include:

  1. They have a sense of integrity and justice, and believe strongly in right and wrong.
  2. They want to see their organization move in a positive direction, take pride in their work, and feel that they have a personal stake in their company.
  3. They are often thinking of others, and believe whistleblowing will protect those at risk, such as consumers, medical patients, etc. As an example, if a worker sees firsthand evidence that his company is manufacturing a defective medical device that could potentially harm thousands of consumers, he is likely to come forward.
  4. Some whistleblowers also want to protect themselves. As an example, if a person on Medicaid sees evidence of billing fraud on his statements, he may fear losing care he needs, therefore will come forward as a whistleblower.
  5. Of course, the money is also an issue, but is seldom the only motivation, and, in fact, the financial reward is typically pretty far down the list for those who come forward to report company wrongdoing.

The fact is, that following your own sense of justice can be admirable, but can also be a long, discouraging, isolating road. After a whistleblower’s case is over, many will actually seek other careers or life paths. Family support is crucial during this time. Those who have chosen to step forward and become a whistleblower could benefit from speaking to a knowledgeable Mississippi attorney who can listen to your story, and help you determine the best way to proceed, keeping you from making any serious missteps along the way.

If you are contemplating blowing the whistle on wrongdoing, it could be a very good idea to speak to a knowledgeable Mississippi employment attorney before you come forward, so you will have a good understanding of all the potential pitfalls you could face. Download our essential guide to Qui Tam and Whistleblower Lawsuits.

 

At Coxwell & Associates, PLLC, our attorneys believe in fighting aggressively for our clients and we can help you. Contact Coxwell & Associates today at 1-601-948-1600, 1-877-231-1600.

 

Disclaimer: This blog is intended as general information purposes only, and is not a substitute for legal advice. Anyone with a legal problem should consult a lawyer immediately.

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