The Commodity Futures Trading Commission (CFTC or the Commission) Division of Enforcement filed the most enforcement actions in the Commission’s history in fiscal year 2020 (FY 2020). On December 2, 2020, DOE released its annual report on enforcement activities, which provides an overview of the CFTC’s enforcement activities between October 1, 2019, and September 30, 2020. Despite the ongoing coronavirus (COVID-19) pandemic, the CFTC’s Division of Enforcement initiated 113 investigations, higher than its previous high of 102 and nearly double its 30-year average of 58 per year. And the monetary relief ordered during that period, exceeding $1.3 billion, was the fourth largest in CFTC history.
The report reveals likely areas of focus for CFTC enforcement activities in the coming year and provides guidance to the industry based on the nature and number of enforcement matters. Enforcement priorities during FY 2020 consisted of: (1) preserving market integrity; (2) protecting customers; (3) promoting individual accountability; and (4) coordinating with other regulators and criminal authorities on parallel matters. The Division of Enforcement plans to remain focused on these four priorities in the coming fiscal year.
In FY 2020, the Division of Enforcement filed 113 new enforcement actions with a cumulative $1.3 billion in relief ordered. Nearly half of the enforcement actions in FY 2020 involved retail fraud, and 24 involved protection customer funds, supervision, and financial integrity. Manipulative conduct and spoofing comprised the third largest category of cases, with 16 brought in FY 2020. Fifty of these enforcement actions also involved charges against one or more individuals.
Among the 113 enforcement actions was the CFTC’s largest spoofing and manipulation case, where it assessed $920 million in disgorgement, restitution, and penalties. The CFTC’s market surveillance program identified the patterns giving rise to this case as well as two others that rank as the second and third largest spoofing cases in the Commission’s history. Spoofing cases usually involve traders submitting false orders for futures contracts on one side of the market with the intent to drive prices towards a genuine order on the other side of the market. The CFTC has indicated that such conduct also constitutes unlawful market manipulation.
A recent enforcement trend has been to file actions in parallel with partner federal and state enforcement agencies. In FY 2020, the CFTC filed 16 actions in parallel with federal criminal authorities, raising the three-year total to 46, nearly two-thirds higher than the 27 actions brought with criminal authorities in the previous seven years. In addition to parallel criminal filings, the CFTC filed jointly one case with 30 state financial regulators. Finally, another recent trend is the importance of whistleblowers. More than a third of ongoing investigations involve a whistleblower component, and in FY 2020, the CFTC granted 16 whistleblower awards totaling $20 million.
To provide further guidance to the industry, the Division of Enforcement issued two guidance documents. First, its Civil Monetary Penalty Guidance, the first since 1994, identifies factors it considers when recommending civil monetary penalties. Second, its Guidance on Evaluating Compliance Programs in Connection with Enforcement Matters provides first-of-a-kind guidance outlining factors it considers when evaluating compliance programs in connection with enforcement actions. Generally, if the CFTC identifies a violation, the presence of a strong compliance program or post-violation efforts to strengthen the compliance program serves to mitigate ordered relief whereas a weak or non-existent compliance program may result in higher penalties and direction to remediate compliance efforts.
In sum, despite the effects of the pandemic, CFTC displayed significant energy in pursuing enforcement actions. The expected change in composition and leadership of the Commission next year is not expected to change the nature and scope of enforcement activities, though it remains to be seen whether the CFTC can maintain the pace of last year’s enforcement actions or if enforcement actions will return to historic averages.