On August 2, 2018, the U.S. Commodity Futures Trading Commission (the “CFTC”) announced multiple whistleblower awards totaling more than $45 million.[1] Although this is only the seventh such aggregate award announced by the CFTC since the inception of its whistleblower program in October 2011,[2] it is the Commission’s highest to date, and comes weeks after the agency’s announcement of two such awards last month. This recent activity, which follows a two-year hiatus during which the CFTC did not grant any whistleblower awards, may signal the Commission’s renewed focus on touting the success of its whistleblower program as well as the conclusion of a number of major CFTC investigations.[3] It is also in keeping with the Commission’s aggressive pace of enforcement actions in recent months.[4]
As is typical, the Commission did not disclose details of the enforcement proceedings related to the awards, explaining that, consistent with its efforts to provide confidentiality protections for whistleblowers, “the CFTC will not disclose the name of the enforcement action in which the whistleblower provided information, the award percentage granted to the whistleblower, and the exact dollar amount of the award granted.”[5] The Commission did disclose that there were shortcomings in the information provided by the whistleblower (or whistleblowers), and that it had lowered the awards as a result.[6] However, an independent report suggests that the awards may be related to the Commission’s multi-year, industrywide investigation into alleged manipulation of the now-retired ISDAFIX benchmark.[7]
Background on the CFTC’s ISDAFIX and Other Benchmark-Related Investigations
The CFTC’s investigation of ISDAFIX followed the Commission’s and other U.S. and foreign regulators’ widely publicized investigations into a different set of benchmarks, the London Interbank Offered Rates (or “LIBOR”),[8] which culminated in settlement orders finding, on a neither admit nor deny basis, that traders at various major financial institutions manipulated or attempted to manipulate LIBOR, at times by colluding with one another or with interbank brokers, by making “false” submissions in order to skew the benchmark in a direction favorable to derivative positions held by the banks and to portray the banks as more creditworthy than they actually were.[9] The CFTC’s investigations into LIBOR alone have resulted in over $3 billion in penalties,[10] and also resulted in numerous criminal proceedings by U.S. and U.K. authorities (certain of which were unsuccessful)[11] as well as ongoing antitrust litigation.[12]
Soon after launching investigations into LIBOR, the CFTC (again, along with certain other U.S. and foreign regulatory agencies) began investigations into other benchmark rates, including ISDAFIX as well as trading-based benchmarks relating to foreign exchange trading.[13] Since May 2015, and as recently as June 2018, the CFTC has issued settlement orders against six banks in connection with ISDAFIX, ranging from $65 million to $250 million and totaling over $700 million.[14] The orders center on allegations that, motivated by a desire to benefit derivative interest rate swap positions tied to ISDAFIX, traders attempted to manipulate the benchmark by making false submissions and by trading in the market shortly before the submissions period with the intent of influencing the final ISDAFIX rate.[15] As with the CFTC’s LIBOR orders, the banks neither admitted nor denied the CFTC’s allegations.
The CFTC’s Whistleblower Program
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the CFTC to pay awards 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.[16] The awards can be between 10 and 30 percent of the sanction, and – as the CFTC’s recent awards indicate – thus may amount to significant sums, particularly when they involve industrywide investigations (and resulting sanctions) against numerous institutions for related or similar alleged conduct.
Importance of Robust Internal Reporting and Compliance Measures
The CFTC’s $45 million aggregate whistleblower award is not only the highest announced by the Commission, but the only award publicly linked to the CFTC’s sweeping, industry-wide investigations into alleged benchmark manipulation.[17] The award illustrates the strong incentives in place for those aware of potential wrongdoing to report it to regulators, as well as the CFTC’s continued reliance on whistleblower tips. It is thus important for companies to maintain robust internal reporting processes that allow for escalation and rapid response to allegations of misconduct, as well as comprehensive and up-to-date trainings, policies and procedures aimed at preventing and detecting misconduct.
[1] See CFTC Announces Multiple Whistleblower Awards Totaling More than $45 Million (Aug. 2, 2018), https://www.cftc.gov/PressRoom/PressReleases/7767-18.
[2] See Program Overview – History of the Whistleblower Program (last visited Aug. 9, 2018), https://www.whistleblower.gov/overview#history.
[3] See Breon S. Peace, Nowell D. Bamberger & Patrick C. Swiber, CFTC Announces Two Significant Awards by Whistleblower Program (July 17, 2018), https://www.clearyenforcementwatch.com/2018/07/cftc-announces-two-significant-awards-whistleblower-program/ (noting the CFTC’s increased outreach efforts aimed at encouraging participation in the whistleblower program, as well as its recent amendments to rules governing the program, which, among other changes, expanded the program’s eligibility requirements and strengthened its anti-retaliation provisions).
[4] Nowell D. Bamberger, Brian J. Morris, Molly B. Calkins & Anoushka Asgari, Recent CFTC Enforcement Actions: Spoofing and Virtual Currency Task Forces (Mar. 28, 2018), https://www.clearyenforcementwatch.com/2018/03/recent-cftc-enforcement-actions-spoofing-virtual-currency-task-forces.
[5] See supra note 1.
[6] In three substantially similar (and heavily redacted) award determination orders, which appear to refer to several whistleblower applications and award claims but only a single applicant, the CFTC recognized that the applicant’s information “led to the opening of the investigation,” but stated that lower awards were justified because “the [a]pplicant’s information is only tangentially related to the claims” and the applicant was unable to provide additional information to the CFTC once the investigation was underway. See CFTC Whistleblower Award Determination No. 18-WB-3, at 5-8 (Aug. 2, 2018); CFTC Whistleblower Award Determination No. 18-WB-4, at 6-9 (Aug. 2, 2018); CFTC Whistleblower Award Determination No. 18-WB-5, at 5-8 (Aug. 2, 2018), all available at https://www.whistleblower.gov/orders.
[7] See Whistleblower Gets Largest-Ever CFTC Award for Exposing the ISDAFIX Scandal, Garson, Segal, Steinmetz, Fladgate LLP (Aug. 6, 2018), https://www.prnewswire.com/news-releases/whistleblower-gets-largest-ever-cftc-award-for-exposing-the-isdafix-scandal—garson-segal-steinmetz-fladgate-llp-300692844.html. Although the CFTC’s release states that the Commission is announcing “multiple whistleblower awards,” this report characterizes them as “the aggregate of three separate awards” that was reportedly made to “[a] single anonymous whistleblower.”
[8] See Matthew Leising, Lindsay Fortado & Jim Brunsden, Meet ISDAfix, the Libor Scandal’s Sequel, Bloomberg (Apr. 18, 2013), https://www.bloomberg.com/news/articles/2013-04-18/meet-isdafix-the-libor-scandals-sequel; David Enrich, Carrick Mollenkamp & Jean Eaglesham, U.S. Libor Probe Includes BofA, Citi, UBS, The Wall Street Journal (Mar. 18, 2011), https://www.wsj.com/articles/SB10001424052748703818204576205991698548286.
[9] See, e.g., CFTC Orders Société Générale S.A. to Pay $475 Million Penalty to Resolve Charges of Manipulation, Attempted Manipulation, and False Reporting of LIBOR and Euribor (June 4, 2018), https://www.cftc.gov/PressRoom/PressReleases/7736-18; CFTC Orders Citibank, N.A. and Japanese Affiliates to Pay $175 Million Penalty for Attempted Manipulation of Yen LIBOR and Euroyen TIBOR, and False Reporting of Euroyen TIBOR and U.S. Dollar LIBOR (May 25, 2016), https://www.cftc.gov/PressRoom/PressReleases/7372-16.
[10] See In the Matter of Société Générale S.A., Order, CFTC Docket 18-14 (June 4, 2018); In the Matter of Citibank, N.A., et al., Order, CFTC Docket 16-17 (May 25, 2016); In the Matter of Deutsche Bank AG, Order, CFTC Docket 15-20 (Apr. 23, 2015); In the Matter of Lloyds Banking Grp. plc, et al., Order, CFTC Docket 14-18 (July 28, 2014); In the Matter of RP Martin Holdings Ltd., et al., Order, CFTC Docket 14-16 (May 15, 2014); In the Matter of Coöperatieve Centrale RaiffeisenBoerenleenbank B.A., Order, CFTC Docket 14-02 (Oct. 29, 2013); In the Matter of ICAP Europe Ltd., Order, CFTC Docket 13-38 (Sept. 25, 2013); In the Matter of The Royal Bank of Scotland plc, et al., Order, CFTC Docket 13-14 (Feb. 6, 2013); In the Matter of UBS AG, et al., Order, CFTC Docket 13-09 (Dec. 19, 2012); In the Matter of Barclays PLC, et al., Order, CFTC Docket 12-25 (June 27, 2012).
[11] See, e.g., LIBOR, U.K. Serious Fraud Office (last visited Aug. 9, 2018), https://www.sfo.gov.uk/cases/libor-landing/ (reporting that the U.K. Serious Fraud Office had brought charges against 13 individuals, five of which resulted in guilty pleas or convictions and eight of which resulted in acquittals).
[12] See Tom Zanki, OTC Investors Win Class Cert. On Libor Antitrust Claims, Law 360 (Mar. 1, 2018), https://www.law360.com/articles/1017420/otc-investors-win-class-cert-on-libor-antitrust-claims (reporting on the successful class certification of one class of plaintiffs, and also noting recent settlements that have “narrowed the scope of the case”).
[13] See, e.g., Matthew Leising, ICAP Brokers on ‘Treasure Island’ Said to Reap ISDAfix Rewards, Bloomberg (Apr. 10, 2013), https://www.bloomberg.com/news/articles/2013-04-10/icap-brokers-on-treasure-island-said-to-reap-isdafix-rewards; Liam Vaughan & Gavin Finch, Currency Spikes at 4 P.M. in London Provide Rigging Clues (Aug. 27, 2017), https://www.bloomberg.com/news/articles/2013-08-27/currency-spikes-at-4-p-m-in-london-provide-rigging-clues.
[14] See In the Matter of JPMorgan Chase Bank, N.A., Order, CFTC Docket 18-15 (June 18, 2018); In the Matter of Deutsche Bank Securities Inc., Order, CFTC Docket 18-09 (Feb. 1, 2018); In the Matter of The Royal Bank of Scotland plc, Order, CFTC Docket 17-08 (Feb. 3, 2017); In the Matter of The Goldman Sachs Group, Inc., et al., Order, CFTC Docket 17-03 (Dec. 21, 2016); In the Matter of Citibank, N.A., Order, CFTC Docket 16-16 (May 25, 2016); In the Matter of Barclays PLC, et al., Order, CFTC Docket 15-25 (May 20, 2015).
[15] Id.
[16] See supra note 3.
[17] There have been public reports that the CFTC had opened its investigations into LIBOR based on a whistleblower tip, but none have linked particular awards to those investigations. See, e.g., Brooke Masters and Patrick Jenkins, Concerns over LIBOR Rate Raised in 2007, Financial Times (July 1, 2012).