The Commodity Futures Trading Commission (CFTC) recently issued new guidance outlining factors the Division of Enforcement considers in recommending civil monetary penalties in CFTC enforcement actions. This issuance marks the first civil monetary penalty guidance issued by the Division of Enforcement since it published its penalty guidelines in 1994.
The new guidance provides enforcement staff’s three-step approach to evaluating an appropriate penalty for recommendation to the CFTC. Staff will consider:
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The “gravity of the violation” – the nature and scope of the violations, including the number of occurrences and duration, any efforts to conceal, and whether the violations resulted in harm to victims. Staff will also consider whether the conduct was intentional or willful, beneficial to the violator, and the impact on market integrity.
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Any “mitigating and aggravating circumstances” – post-violation attempts to cure or efforts to conceal, self-reporting misconduct, prior misconduct, effectiveness of the company’s pre-existing compliance program, and the timeliness of remediation.
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“Other considerations” - the mix of remedies and monetary relief to be imposed, remedies and relief imposed in parallel cases by other authorities and regulatory entities, monetary and non-monetary relief in analogous cases, and conservation of CFTC resources.
In formulating the appropriate penalty, the guidance instructs staff to take into account the goals of specific and general deterrence.
The new guidance should benefit energy traders as well as companies trading other commodities in futures contracts by providing some clarity that can be used in the compliance training process and in enforcement investigations.
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