On May 22, 2017, the U.S. Commodity Futures Trading Commission (CFTC) approved changes to the Whistleblower Rules articulated in the Commodity Exchange Act (CEA). The recent amendments strengthen anti-retaliation protections for whistleblowers and bring the CFTC’s whistleblower program more in line with that of its sister agency, the Securities Exchange Commission (SEC).
Both the CFTC, which is responsible for policing the country’s futures and swaps markets, and the SEC have whistleblower programs established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The programs offer monetary rewards and statutory safeguards for employees who report violations of federal securities and commodities laws. Structurally, both whistleblower programs have similar core principles: in return for original, voluntary information that results in a successful enforcement action and nets $1 million or more in monetary sanctions, each program authorizes a whistleblower payment between 10 to 30 percent of the amount collected. In practice, however, the CFTC and SEC whistleblower programs operated on vastly different scales, with the SEC historically receiving far more tips and issuing greater, more frequent, monetary awards.
The CFTC’s current amendments, based on those originally proposed in August 2016, may be viewed as an effort to close the gap between the CFTC and SEC’s whistleblower programs.
The amendments prohibit employers from taking action to impede an individual from communicating with the CFTC staff about a potential violation, particularly by enforcing or threatening to enforce arbitration agreements or confidentiality agreements. One key change involves the CFTC’s reinterpretation of its statutory authority to enforce retaliation claims on behalf of the whistleblower. Previously, the CFTC declined to assert statutory authority to bring civil retaliation claims against employers. This approach contrasted with the approach of the SEC, which has actively protected whistleblowers from retaliation. It created a disparity in which employees providing information about potential violations of securities laws to the SEC had strong statutory protection from retaliation, but not those providing information about potential violations of the commodities laws to the CFTC. The CFTC’s new statutory interpretation eliminates that discrepancy.
The amendments also clarify that a claimant may provide information to another authority or agency and still receive an award from the CFTC. Tippers may benefit not only from covered actions brought by the CFTC in response to information they have provided but also from related actions brought by other enforcement bodies that use information from the CFTC. Additionally, the claimant now has 180 days after informing another entity to notify the CFTC and qualify for an award. This period was extended from the prior deadline of 120 days.
In echo of the SEC’s whistleblower structure, the rules establish a Claims Review Staff to evaluate claims in lieu of the previous Whistleblower Award Determination Panel. The Claims Review Staff will be tasked with making preliminary decisions on the merits of award applications as well as the appropriate amount of awards. A whistleblower has the opportunity to consult the record and may contest a Preliminary Determination before the agency issues its Final Determination. In further imitation of the SEC, the CFTC’s Director of Enforcement will have responsibility for the whistleblower program.
James McDonald, the Director of the Division of Enforcement appointed in March, called the Whistleblower Program “an integral part of the Division’s efforts to identify and prosecute unlawful conduct.” He added in a statement that he expects the new rules to “further strengthen and enhance our efforts to protect customers and promote market integrity.”
It remains to be seen how the new amendments will impact the volume of whistleblower tips and awards. While the CFTC’s whistleblower program was picking up speed recently, issuing three awards in a ten-month period, its total amounts awarded are still dwarfed by the SEC. The CFTC’s most recent award was announced more than a year ago, on July 19, 2016, in the amount of approximately $50,000. In contrast, the SEC has issued a number of awards in 2017. Its most recent award was issued on July 25, 2017 to an employee of a domestic government agency; it totalled almost $2.5 million dollars, bringing the total amount awarded to date by the SEC to approximately $156 million.