Bipartisan Bill Provides Long-Term Fix to CFTC Whistleblower Program Funding Crisis

Kohn, Kohn & Colapinto LLP

Over the past few years, the Commodity Futures Trading Commission (CFTC) Whistleblower Program has faced a funding crisis which threatens to undermine the success of the program. While a 2021 law provided a short-term fix which saved the program from collapse, the need for a long-term fix remains.

Introduced in July, the bipartisan CFTC Whistleblower Fund Improvement Act of 2023 provides the long-term fix by raising a cap placed on the Fund used to finance the program. Without using any taxpayer dollars, the bill ensures that the CFTC can continue to pay out whistleblower awards and finance the operations of the Whistleblower Office.

The crisis facing the CFTC Whistleblower Program is due to its success. When Congress established the program in 2010, it did not predict that it would grow in the ways that it has. It did not foresee that it would bring in such massive sanctions, and correspondingly pay out such large whistleblower awards. The funding cap instituted by Congress is thus incongruous with the current state of the program.

“The CFTC whistleblower program should not be a victim of its own success. Without congressional action, the whistleblower reward fund could drain faster than it replenishes,” said Senator Chuck Grassley (R-IA), one of the bill’s principal cosponsors.

Like the SEC Whistleblower Program, the CFTC Whistleblower Program offers monetary awards to qualified whistleblowers, individuals who voluntarily report original information about commodities law violations which result in a successful CFTC enforcement action. Awards are for 10-30% of the funds collected by the government in the case.

The CFTC pays whistleblower awards out of the Consumer Protection Fund which is entirely financed by sanctions collected by the CFTC from fraudsters. The Fund also finances the operations of the CFTC Whistleblower Office. It is a Congressionally-set $100 million cap on the Fund which has caused serious issues as the program has continued to grow.

Since 2010, whistleblowers have allowed the CFTC to recover over $3 billion from fraudsters but due to the cap only a fraction of this has been deposited in the Fund. As a result, the CFTC has faced the risk of completely depleting its fund by paying out large whistleblower awards. Back in 2021, the agency informed senators that it was delaying the payment of awards due to the funding crisis.

In 2021, in response to the crisis, Congress passed the CFTC Fund Management Act, an emergency piece of legislation which created a fund specifically for the operations of the CFTC Office of the Whistleblower, separate from the fund used to pay whistleblower awards. This ensured that the program could continue to operate even if a large whistleblower award depleted the fund.

This separate fund is set to expire in 2024, however. Furthermore, the separate fund does not solve the problem of a cap too small for the size of sanctions being collected by and awards paid out by the program. In March, Rostin Behnam, Chairman of the CFTC, testified before the U.S. Senate Committee on Agriculture, Nutrition, & Forestry. During his testimony, Behnam expressed his belief that the Fund needs a “long-term fix.”

The CFTC Whistleblower Fund Improvement Act of 2023 provides a long-term fix by raising the cap on the Fund from $100 million to $300 million. It also permanently establishes the second fund used to finance the program’s operations.

“When whistleblowers bravely step forward, they are risking their careers in order to prevent wrongdoing and save taxpayer dollars,” said Senator Maggie Hassan (D-NH), another principal cosponsor of the bill. “It is vital that this fund for whistleblowers remains available in the future to continue saving billions of dollars. I am glad that Senator Grassley and I were able to temporarily continue this program for the past two years, and I urge my colleagues to support this bill that will make this fund permanent.”

The bill is widely supported by whistleblower advocates. A letter signed by a number of advocacy groups states that the bill “should not be controversial” and “would help keep pace with the needs of a fund that supports a highly successful program that has experienced significant growth in recent years.”

Over the past decade, the CFTC Whistleblower Program has become essential to the agency’s enforcement efforts. According to the agency, roughly 30 percent of all CFTC enforcement investigations stem from whistleblowers.

“The Commodity Futures Trading Commission recognizes the critical role whistleblowers play in our enforcement program every day,” Acting Director of the CFTC’s Whistleblower Office Christina McGlosson recently told Whistleblower Network News.

In order for the CFTC Whistleblower Program to continue to be a success story, Congress will need to pass this long-term funding fix to ensure that program is able to incentivize and award whistleblowers providing high-quality information.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Kohn, Kohn & Colapinto LLP | Attorney Advertising

Written by:

Kohn, Kohn & Colapinto LLP

Kohn, Kohn & Colapinto LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide