On March 4, 2019, the US Commodity Futures Trading Commission (CFTC) announced a whistleblower award totaling more than $2 million to a company outsider who contributed information through independent analysis that led to a successful CFTC enforcement action and a successful action by another federal regulator.1 This award is the first of its kind for the CFTC and demonstrates the CFTC’s willingness to leverage information and analysis from industry experts to detect and prosecute violations under the Commodity Exchange Act (CEA).
Is the award noteworthy?
Yes, for two reasons. First, the whistleblower was not a firm insider. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) authorizes payment of whistleblower awards for original information not already known to the CFTC.2 This award provides industry experts with an incentive to communicate potential violations detected by their independent research and analysis. The award is also noteworthy in that the amount is based on actions brought by other federal regulators.
Has a company outsider ever received an award for independent analysis?
Yes, on January 15, 2016, the US Securities and Exchange Commission (SEC) awarded a similar whistleblower claim. Section 922 of Dodd-Frank enacted a whistleblower provision for reporting potential securities law violations. Pursuant to the provision, when a person voluntarily3 provides original information4 that leads to a single successful enforcement proceeding resulting in monetary sanctions over $1 million, that person is entitled to receive at least 10 to 30 percent of the monetary sanctions actually collected. The SEC awarded $700,000 to a company outsider who conducted a detailed analysis that led to a successful SEC enforcement action.5 The facts described in the CFTC and SEC announcements and the two underlying award orders are similar.
What are the requirements for an award under the CFTC’s whistleblower rules?
To qualify for an award under Section 23(b)(1) of the CEA and CFTC rules, a whistleblower must voluntarily provide the CFTC with original information that leads to the successful enforcement of a covered judicial or administrative action or related action.6 The whistleblower must also submit a claim in response to a notice of a covered judicial or administrative action or final judgment in a related action and provide the CFTC staff with additional information upon request regarding the information submitted.7
How is an award amount determined?
Typically, the CFTC’s claims review staff will issue a preliminary recommendation of the award amount. The CFTC may either adopt or reject the staff’s recommendation. When the money sanctions in question exceed $1 million, a whistleblower’s award can range from 10 to 30 percent of the money collected.8 The CFTC and its staff take into consideration a number of criteria in determining the award amount, including (i) the significance of the information provided by the whistleblower to the success of the covered or related action; (ii) the degree of assistance provided by the whistleblower in any covered or related action; (iii) the programmatic interest of the CFTC in deterring violation of the CEA; (iv) whether the award otherwise enhances the CFTC’s ability to enforce the CEA, protect customers and encourage the submission of high-quality information; and (v) potential adverse incentives from oversize awards.9
As relevant here, the CFTC may grant an award based on the amount of monetary sanctions collected in a judicial or administrative action that is brought by the Department of Justice; an appropriate department or agency of the federal government, acting within the scope of its jurisdiction; a registered entity, registered futures association or self-regulatory organization; a state criminal or appropriate civil agency; or a foreign futures authority.10 The CFTC, however, will not make an award to a claimant for a final judgment in a related action if the claimant has already been granted an award by the SEC for the same action pursuant to its whistleblower program under Section 21F of the Securities Exchange Act of 1934.11