On July 12 and 16, 2018, the U.S. Commodity Futures Trading Commission (“CFTC”) announced two awards to whistleblowers, one its largest-ever award, approximately $30 million, and another its first award to a whistleblower living in a foreign country.[1] These awards—along with recent proposed changes meant to bolster the Securities and Exchange Commission’s (“SEC” or “Commission”) own whistleblower regime—demonstrate that such programs likely will continue to be significant parts of the enforcement programs of both agencies and necessarily help shape their enforcement agendas in the coming years.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) authorized the CFTC to pay awards of between 10 and 30 percent to whistleblowers who voluntarily provide original information to the CFTC leading to the successful enforcement of an action resulting in monetary sanctions exceeding $1 million.[2] Following the introduction of implementing rules, the CFTC’s program became effective in October 2011. Over the next six-and-a-half years, the CFTC has paid whistleblower bounties on only four prior occasions, with awards ranging from $50,000 to $10 million. The $30 million award announced last week, thus, reflects a significant increase. This week’s award to a foreign whistleblower also represents another first for the CFTC’s program and reflects the global scope of the program.
While the CFTC’s whistleblower program has not resulted in numerous substantial payouts, it clearly is functioning. In fact, the number of tips received by the CFTC’s Whistleblower Office has increased each year since the whistleblower program’s inception, including a 70% increase from fiscal year 2016 to fiscal year 2017 which the CFTC attributed to its ongoing outreach efforts aimed at educating stakeholders about the program.[3] The CFTC also approved amendments to the rules governing its whistleblower program last May, which, among other changes, expanded whistleblower eligibility requirements and strengthened anti-retaliation provisions.[4]
The SEC’s whistleblower program has to date been significantly more active than the CFTC’s. Since the inception of the program, the SEC has received over 22,000 tips through its whistleblower program and has issued awards totaling approximately $266 million to 55 whistleblowers.[5] The SEC has also issued seven individual whistleblower awards of more than $10 million each, with the largest award totaling $50 million.
Although some had speculated that the current Commission may make less use of the whistleblower program, due either to an overall downturn in SEC enforcement activity or a policy shift against rewarding whistleblowers, to date, this has not come to pass. In fact, earlier this year, the SEC proposed changes to its whistleblower program seemingly aimed at expanding its scope. If adopted, the SEC’s proposed amendments would allow whistleblower awards in conjunction with deferred prosecution agreements and non-prosecution agreements in criminal cases and also give the SEC flexibility to adjust award amounts to better incentivize whistleblowing, among other changes.[6] Moreover, the Supreme Court’s recent holding in Digital Realty Trust, Inc. v. Somers that the anti-retaliation provision of Dodd-Frank applies only to employees that report potential securities law violations directly to the SEC, and not only to their companies, will likely lead to increased whistleblower reporting to the agency.[7]
Recent trends therefore suggest that the CFTC and SEC will continue to rely upon and may seek to expand their respective whistleblower programs moving forward. It is likely that the number of whistleblower tips to each will rise as well. Thus, it remains important for companies to ensure that they 1) have robust policies and procedures to prevent and detect misconduct, including internal reporting mechanisms for individuals to report potential misconduct, 2) take steps to investigate allegations raised by whistleblowers and remediate any misconduct, and 3) avoid taking any actions against whistleblowers that may be found to be retaliatory.
[1] CFTC Press Release, CFTC Announces Its Largest Ever Whistleblower Award of Approximately $30 Million (July 12, 2018), available at https://www.cftc.gov/PressRoom/PressReleases/7753-18; CFTC Press Release, CFTC Announces First Whistleblower Award to a Foreign Whistleblower (July 16, 2018), available at https://www.cftc.gov/PressRoom/PressReleases/7755-18.
[2] 7 U.S.C. § 26(b)(1).
[3] CFTC, Annual Report on the Whistleblower Program and Customer Education Initiatives (Oct. 2017), available at https://www.whistleblower.gov/sites/whistleblower/files/Reports/wb_fy2017reporttocongress.pdf.
[4] See Breon Peace, Jennifer Kennedy Park, Robin Bergen & Nowell Bamberger, CFTC Approves Amendments to Whistleblower Rules Including Significant Enhancements of its Anti-Retaliation Protections (May 25, 2017), available at https://www.clearygottlieb.com/~/media/organize-archive/cgsh/files/2017/publications/alert-memos/cftc-approves-amendments-to-whistleblower-rules-6-1-17.pdf.
[5] SEC, Whistleblower Awards Over $250 Million (Jan. 23, 2017), https://www.sec.gov/page/whistleblower-100million; SEC Press Release, SEC Awards Whistleblower More Than $2.1 Million (Apr. 12, 2018), available at https://www.sec.gov/news/press-release/2018-64.
[6] SEC Press Release, SEC Proposes Whistleblower Rule Amendments (June 28, 2018), available at https://www.sec.gov/news/press-release/2018-120.
[7] See Arthur H. Kohn, Matthew C. Solomon & Nowell D. Bamberger, Supreme Court Clarifies the Scope of Dodd-Frank’s Whistleblower Protections (Feb. 23, 2018), available at https://www.clearygottlieb.com/news-and-insights/publication-listing/supreme-court-clarifies-the-scope-of-dodd-franks-whistleblower-protections.