Congress created the whistleblower program administered by the U.S. Commodity Futures Trading Commission (CFTC) with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The government passed the Dodd-Frank Act, in the wake of the Great Recession, to increase protections for investors and oversight of the financial industry.
Like the False Claims Act (FCA), the CFTC Whistleblower Program provides financial rewards and protections against retaliation for individuals reporting commodities and derivative-related frauds. Unlike the FCA, however, CFTC whistleblowers do not file qui tam lawsuits in federal court—they submit their information by way of a Form TCR (Tip, Complaint, or Referral) filed with the CFTC. And they may do so anonymously.
Given its efforts to preserve whistleblower confidentiality, the CFTC does not reveal the details of what enforcement actions lead to what whistleblower awards. But the CFTC’s broad regulatory mandate—from traditional commodities (e.g., corn, soybeans, etc.) to complex financial products, such as futures, swaps, options, and currency-based instruments—suggests that the scope of misconduct that may give rise to a CFTC whistleblower tip (and award) is wide-ranging. Examples of such misconduct include:
Fraud schemes, including
- Fraudulent solicitation
- Misappropriation of customer funds
- Issuing false customer account statements
- Mishandling customer funds
- Ponzi schemes
- Affinity schemes
Market manipulation, including attempted market manipulation and disruptive trade practices, such as
- Fictitious and noncompetitive transactions
- Illicit trading strategies designed to manipulate, fix, or attempt to manipulate or fix prices, benchmark rates, or exchange rates
- Disruptive trading of futures or swaps, including spoofing, i.e., bidding or offering with the intent to cancel the bid or offer before execution
Trade practice violations, including
- Wash sales
- Fictitious sales
- Noncompetitive transactions
- Violation of position limits
- Noncompetitive exchange of futures for physical transactions opposite each other
- Illegal, off-exchange precious metals transactions
- Unauthorized swap transactions
- Inadequate oversight of traders
- Undercapitalization
- Improper controls and supervision
- Improper handling and/or segregation of customer funds
- Failing to comply with applicable record-keeping and audit trail rules
- Creating after-the-fact trading records containing fictitious information that were submitted for clearing
These types of frauds, and the many others falling within the CFTC’s regulatory ambit, have the propensity for great economic harm. As we saw in 2008, deeply entrenched financial fraud can affect both individuals unknowingly invested in these schemes and the economy writ large.
As the CFTC Whistleblower Program continues its recent growth—the agency issued $123 million in whistleblower awards in just the last fiscal year—more commodities and derivative-related schemes will be prevented and rooted out. Indeed, on October 21, 2021, the CFTC awarded the largest-known single whistleblower award ($200 million) under the programs established by the Dodd-Frank Act. This demonstrates the commitment that the agency has to whistleblowers and, also, the impact that CFTC whistleblowers are having in uncovering systemic harm and holding accountable those responsible.
If you are considering reporting information to the CFTC, please fill out our online form or contact us by phone at (267) 551-5240 or via e-mail at zarbitman@feldmanshepherd.com for a free, confidential consultation.