On October 17, 2023, during a speech at the Program on Corporate Compliance and Enforcement held at the New York University School of Law, the Commodity Futures Trading Commission (CFTC) Director of Enforcement, Ian McGinley, announced “first-of-their-kind” CFTC enforcement policies in the following three areas: (i) admissions; (ii) penalties, including the factors considered in defining recidivism; and (iii) imposing monitors and consultants. These new policies seek to achieve the two overarching goals of ensuring accountability and deterring misconduct.

Key Takeaways:

• In corporate resolutions and when appropriate, the CFTC will prioritize admissions of misconduct, and “no admit, no deny” resolutions will no longer be the norm.
• The CFTC is recalibrating how it levies penalties including assessing higher fines on recidivists.
• The CFTC clarified the difference between Consultants and Monitors and when these different types of third-party oversight will be required.

Background on CFTC’s Announced Policy Changes

As Director McGinley stated during his announcement, the CFTC’s highest priority remains deterring misconduct, including ensuring that punishment is sufficient to achieve general deterrence in the marketplace and specific deterrence of actors who have violated the law.

Admissions. According to Director McGinley, respondents should be prepared to make admissions of misconduct as part of any corporate resolution. The “no-admit, no-deny” resolutions will no longer be the norm. To determine whether admissions are required as part of a resolution, the CFTC will consider several factors, including: (1) whether the respondent has admitted to facts as part of a parallel criminal resolution; (2) the strength of the evidence uncovered during the investigation that conclusively establishes the misconduct, such as where the misconduct was admitted in testimony; and (3) whether the offense is a strict liability offense where intent is not an issue.

Recidivism. Director McGinley commented that the CFTC has brought cases against the same institutions time and time again, often for the same or similar violations. To combat this problem, the CFTC will now treat recidivism as a significant aggravating factor that will increase penalties. When assessing recidivism, the CFTC will consider certain factors, including: (1) the overlapping nature of the prior and current misconduct; (2) whether the violations resulted from the same root cause or involved the same general subject matter; (3) the time that elapsed between offenses (with more recent conduct receiving more weight in determining whether an institution is a recidivist); (4) whether the overlapping management were involved; (5) the pervasiveness of the new misconduct; and (6) the effectiveness of remediation since the prior misconduct.

Monitors v. Consultants. In some situations, the CFTC may recommend corporate compliance “Monitors” or “Consultants” in corporate resolutions when the CFTC believes there is a need for oversight of remediation. A Monitor in this context is a third party approved by the government and engaged to make recommendations, test those recommendations, and report on the results of its work to the CFTC. According to Director McGinley, the CFTC will impose a Monitor when the CFTC lacks confidence that the institution will be able to remediate without oversight by the Enforcement Division. To differentiate, a Consultant is a third party engaged by the institution to advise on regarding compliance enhancements. The CFTC may find a Consultant to be appropriate—and a Monitor unnecessary—when the CFTC is persuaded that while the institution requires the assistance of a neutral third party to ensure and advise on remediation, the institution otherwise is able to remediate on its own. Recidivism will be a significant factor that will influence the CFTC on whether a Monitor or Consultant is necessary in any corporate resolution.

Director McGinley also emphasized the importance of self-reporting and cooperation, as reflected in CFTC’s prior guidance.

Conclusion

The CFTC’s new approach to resolutions—requiring admissions acknowledging misconduct, higher penalties for recidivists, and the necessity of oversight—aims to communicate that the CFTC will be more proactive and less tolerant in its enforcement actions. Director McGinley stated that he was “surprised” to learn after joining the Division that some believe the CFTC is “friendly” when it comes to enforcement. The new guidance is intended in part to dispel that “myth.” But as the Director acknowledged, these are “first-of-their-kind initiatives” for the CFTC, and they will require “fine-tuning.” It thus remains to be seen how the CFTC will apply its new guidance to structure resolutions to achieve its goals of improved accountability and deterrence.

The revised CFTC guidance follows similar efforts by the U.S. Department of Justice and federal regulators to incentivize cooperation and bolster corporate compliance programs as well as focus on companies that have a history of misconduct. Demonstrating the ability to identify and correct non-compliance activities and a lack of correlation between past and present misconduct will be critical in mitigating potential penalties and avoiding the imposition of a monitor or consultant.

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