In the Wake of Recordbreaking Whistleblower Award, Review Compliance Protocols

Winthrop & Weinstine, P.A.

Winthrop & Weinstine, P.A.

Companies that are subject to federal securities laws and regulations, and those involved in markets for futures, options, and swaps should take note: On October 21, 2021, the Commodity Futures Trading Commission (CFTC) announced that it awarded nearly $200 million to a whistleblower. The whistleblower, who sources identified as a former Deutsche Bank employee, had provided information in 2012 that contributed to an open investigation of Deutsche Bank, and ultimately led to a successful enforcement action. The information related to then-ongoing manipulation of the London Interbank Offer Rate (LIBOR), a benchmark interest rate at which major banks lend to one another.

American and British financial authorities fined Deutsche Bank $2.5 billion in 2015 in response to the rate-rigging scandal, but the CFTC initially denied the whistleblower’s application for an award. Section 748 of the Dodd-Frank Act allows successful whistleblowers to receive 10-30% of monetary sanctions collected from violators when they provide information that significantly contributes to the success of an enforcement action, and can show that there is a meaningful nexus between that information and the CFTC’s successful investigation. An internal review by the CFTC reversed its initial denial, and granted the award to the whistleblower. The record-breaking award is the largest ever received under the Dodd-Frank Act, which was enacted in 2010 in the wake of the Great Recession to restructure financial regulations in the United States.

Proponents of whistleblowing schemes point to the size of the award as evidence that such programs are effective and provide substantial incentives to bring potential whistleblowers to contact enforcement officials, while opponents have criticized what they view as excessive windfalls to whistleblowers. If your company is subject to federal securities law, now is a good time to review your company’s compliance protocols to make sure you’re not potentially in violation of any such laws or regulations, and to consider how to limit exposure to investigations by minimizing the risk of becoming the subject of a whistleblowing complaint.

A redacted version of the CFTC’s October 21, 2021 Order can be found here.

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.

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