In its FY 2019 annual report, the CFTC Division of Enforcement revealed that between 30 to 40% of its ongoing investigations involve some whistleblower component and that it “is committed to rewarding the critical assistance provided by qualified whistleblowers—and, at the same time, working to encourage other potential whistleblowers to come forward.”  A December 19, 2019 order awarding a whistleblower more than $1M demonstrates that the CFTC is carrying out this promise.  In particular, the December 19 Order demonstrates a shrewd application of the CFTC whistleblower rules to incentivize whistleblowing.

Rewarding Internal Whistleblowing that Leads to an Enforcement Action

The December 19 Order rewards a whistleblower that initially reported information through his or her employer’s internal reporting procedures, which was then provided by the company to another regulator and subsequently referred by that regulator to the CFTC.  The whistleblower provided additional assistance to the CFTC through an interview with Enforcement staff and by providing documents.

The investigation that the whistleblower’s tip initiated enabled the CFTC to take an enforcement action based on conduct that was related to the subject of the original information provided by the whistleblower.  Even though the subject of the enforcement action is not the precise conduct that the whistleblower initially reported, the whistleblower was eligible for an award for reporting related conduct.  As summarized in the CFTC’s press release announcing the award, a whistleblower can be rewarded for “a tip that leads to evidence of a violation the CFTC ultimately charges, even if the reported conduct itself does not form the basis for those charges.”

In adopting the recommendation of the Claims Review Staff to reward this whistleblower, the CFTC underscored key aspects of its whistleblower rules and sent an important message that the CFTC is serious about incentivizing whistleblowing:

• First, the definition of original information that leads to a successful enforcement action includes information that a whistleblower provides through an entity’s internal whistleblower, legal, or compliance procedures where the whistleblower or the entity provides the whistleblower’s information to the CFTC. See 17 C.F.R. §§ 165.2(i)(3).  To ensure eligibility for an award, a whistleblower that initially discloses a violation to his or her employer should also submit the information to the CFTC Whistleblower Office within 180 days of providing it to the entity.

• Second, if a whistleblower’s tip is initially provided to a regulator other than the CFTC and that regulator refers the information to the CFTC, the whistleblower can be deemed an original source of the information where the regulator obtained the information from the whistleblower or the whistleblower’s representative. See 17 C.F.R. § 165.2(l).

• Third, a specific, credible, and timely whistleblower tip that causes the CFTC to initiate an investigation can qualify for an award if the investigation leads to a successful enforcement action “based in whole or in part on conduct that was the subject of the whistleblower’s original information.” 17 C.F.R. § 165.2(i)(1).  Recognizing that “where there’s smoke, there’s fire,” the CFTC will award a whistleblower that led the CFTC to uncover a violation even if the violation is not the precise conduct that the whistleblower disclosed.

• Fourth, the CFTC will exercise discretion in applying the form and manner requirements of its rules.  Here, the whistleblower filed a Form TCR to perfect his/her status as a whistleblower after the conclusion of the investigation, but the whistleblower was still eligible for an award because the whistleblower complied with Rule 165.3(a), which does not require the whistleblower to submit their initial tip on a Form TCR.  See 17 C.F.R. § 165.3(a).

CFTC Whistleblower Reward Program

Under the CFTC Whistleblower Reward Program, whistleblowers are eligible for monetary rewards when they voluntarily provide the CFTC with original information about wrongdoing that leads the agency to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.  The CFTC has paid $100 million to whistleblowers since the inception of the CFTC Whistleblower Reward Program, and enforcement actions associated with those rewards have resulted in sanctions orders totaling more than $800 million.  In FY 2019, the CFTC paid more than $15 million to individuals who voluntarily provided original information or independent analyses that led to successful enforcement actions