Quick Hits

• The CFTC fined a commodities trader $55 million in its first-ever enforcement action under its seven-year-old rule prohibiting companies from impeding whistleblowers.
• Two CFTC commissioners disagreed with enforcing the whistleblower rule in this case.
• The CFTC action comes amid similar whistleblower enforcement actions by other federal regulators.

On June 17, 2024, the CFTC announced a settlement order with the Houston-based subsidiary of global commodities trader Trafigura PTE, Ltd., requiring the company to pay $55 million in civil penalties to settle charges alleging multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The order applies to three alleged violations by Trafigura Trading LLC, including misappropriation of material nonpublic information related to gasoline trading, manipulative conduct in the fuel oil market.

Notable for employers, the CFTC also alleged the company required employees to sign and requested former employees to sign broad nondisclosure agreements that allegedly prevented them from speaking with the CFTC, law enforcement, other regulators, and inhibited the CFTC’s investigation.

“This is the first CFTC action charging a company under regulations designed to prevent interference with whistleblower communications,” director of the CFTC’s Whistleblower Office Brian Young said in a statement announcing the settlement order. “This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate contractual arrangements that could impede communication by potential witnesses.”

CFTC Whistleblower Rule

The CFTC alleged the company violated the whistleblower rule in Regulation 165.19(b), which was adopted in 2017 and prohibits companies from taking “any action to impede an individual from communicating directly with the Commission’s staff about a possible violation” of the CEA, “including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications.”

Specifically, the CFTC alleged that between July 31, 2017, and 2020, the company required its employees to sign employment agreements and requested former employees sign separation agreements “that contained broad non-disclosure provisions that prohibited sharing Trafigura’s confidential information with third parties.” The agreements allegedly did not include exceptions or carveouts “that would have expressly permitted sharing information with” the CFTC and other law enforcement agencies or regulators.

The agreements “led to confusion” among current and former employees and “had the effect of impeding their direct and voluntary communications with the” CFTC, the agency said.

According to the settlement order, the company contended that it “voluntarily undertook significant remedial steps to enhance its compliance program,” including implementing new risk-based policies and training employees.

‘Acted’ to Impede

The CFTC alleged the nondisclosure agreements lacking specific carveouts “purported to prohibit individuals from voluntarily and directly communicating directly with Commission staff about possible violations of the” CEA or CFTC regulations and thus violated Regulation 165.19. The agency further alleged that “[s]uch language facially prohibiting an individual from communicating with the Commission violates Regulation 165.19 even without any additional actions impeding communications.”

However, two of the five CFTC commissioners, Commissioner Summer Mersinger and Commissioner Caroline Pham, issued separate statements expressing disagreement with the CFTC’s enforcement of the seven-year-old whistleblower rule in this case, arguing that the company was not alleged to have “acted” to impede reporting to the CFTC in violation of the whistleblower rule and that the rules do not require particular language in employment agreements for compliance.

Specifically, Commissioner Pham said the “settlement order essentially wordsmiths job offer letters and other employment-related agreements with boilerplate confidentiality provisions for commodity firms around the world that have no CFTC registration requirements, and other market participants.”

Implications for Nondisclosure Agreements

Employers commonly use nondisclosure agreements (sometimes referred to as NDAs) and confidentiality agreements to protect their confidential and proprietary information. While such agreements are intended to protect legitimate business interests, they have come under scrutiny with regard to whether they impede employees and former employees from reporting misconduct to federal regulators or impede their cooperation and sharing information with federal investigations.

The CFTC’s latest action enforcing its whistleblower rule comes as other federal regulators, namely the U.S. Department of Justice and the Securities Exchange Commission (SEC), have similarly been bolstering and enforcing their whistleblower programs, indicating a desire by federal regulators to encourage reporting and cooperation. In 2024, the SEC similarly fined a company over it use of nondisclosure and confidentiality agreements that allegedly impeded employees from whistleblower activity in violation of Section 21F-17(a) of the Securities Exchange Act of 1934.

Next Steps

Given the CFTC’s whistleblower enforcement action, regulated employers may want to consider reviewing their employment agreements, separation agreements, and other policies concerning whether they prohibit, restrict, or discourage employees and former employees from participating in the CFTC’s (and other federal agencies’) whistleblower program.

Notably, it is possible the outcome of the 2024 presidential election could have implications for federal whistleblower programs as a new administration could shift enforcement approaches and priorities.