Washington, D.C., USA: The U.S. Commodity Futures Trading Commission (CFTC) normally awards 10%-30% of the money collected in a case to whistleblowers and the CFTC says it has paid approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action.
The award was the result of information that helped the agency sanction JPMorgan Chase for failing to properly inform some wealthy clients about conflicts of interest behind its investment recommendations, according to an attorney involved in the matter.
The CFTC made the award public on Thursday without naming individuals or the bank. According to the attorney, Edward Siedle, it was the culmination of a December 2015 settlement in which JPMorgan agreed to pay regulators a total of $367 million for failing to disclose that it was steering asset-management clients into investments that would be especially profitable to the bank.
That included $100 million that went to the CFTC — $40 million in penalties and $60 million in disgorgement. The bank agreed to pay an additional $267 million at the time to the Securities and Exchange Commission, where a pair of preliminary whistleblower awards totaling $61 million were authorized a year ago but still await final approval.
The CFTC’s award is the fifth in the history of its program and eclipses a previous $10 million record announced in 2016. The latest award is also the CFTC’s first since July 2016, when it announced it was paying approximately $50,000 to an unidentified recipient for providing original information that led to a successful enforcement action.
“We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations” of commodities-trading law, said CFTC Chairman J. Christopher Giancarlo.
The CFTC’s Whistleblower Program – which was created by the Dodd-Frank Act – allows for the payment of monetary awards to eligible whistleblowers, and provides anti-retaliation protections for whistleblowers.
“The Whistleblower Program has become an integral component in the agency’s enforcement arsenal,” said CFTC Chairman, J. Christopher Giancarlo. “We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act [CEA].”
James McDonald, Director of the Division of Enforcement, stated: “Whistleblower submissions have become a significant part of our enforcement program, allowing us to pursue violations we might otherwise have been unable to detect. That’s one reason why we’ve worked hard to expand our Whistleblower Program, including by increasing the protections afforded to whistleblowers that come forward. I expect the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.”
Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected. All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from harmed investors to fund the program.
“The award today is a demonstration of the program’s commitment to reward those who provide quality information to the CFTC,” said Christopher Ehrman, Director of the CFTC’s Whistleblower Office. “The number of leads the office receives continues to grow each year by the hundreds. We hope that this award will continue to facilitate the upward momentum and success of the CFTC’s Whistleblower Program by attracting those with knowledge of wrongdoing to come forward.”
Siedle acknowledged earlier Thursday that an unnamed client of his acted as a whistleblower in obtaining the CFTC award. Siedle said he had also obtained a preliminary award from the SEC on behalf of the same client.
“Most would-be whistleblowers overlook the fact that there’s a commodities element in most investment fraud,” Siedle said. “This award demonstrates that the CFTC is willing to act quickly on those complaints if contacted.”
JPMorgan acknowledged lapses in disclosing information to money-management clients about its preference for investing their assets in mutual funds and hedge funds managed by affiliates or a third party that shared its fees with the bank. The largest U.S. bank by assets, it has said the omission was unintentional, and it has enhanced its disclosures.
The CFTC Whistleblower Program
The Commission’s whistleblower program was created by the Dodd-Frank Act, and it provides monetary awards to persons who voluntarily report violations of the Commodity Exchange Act (CEA) if the information leads the Commission to bring an action, or if the information significantly contributes to the success of a Commission action, that results in more than $1 million in monetary sanctions. The Commission can also pay awards based on monetary sanctions collected by other authorities in actions that are related to a successful CFTC action and are based on information provided by a CFTC whistleblower. The Dodd-Frank whistleblower provisions also prohibit any action taken to impede an individual from communicating directly with the Commission’s staff about a possible violation of the CEA, as well as retaliation by employers against employees who come forward with information about possible violations. The CFTC has authority under the CEA to enforce the anti-retaliation provisions against offending employers. The Dodd-Frank whistleblower provisions also include certain confidentiality protections to whistleblowers.
How the CFTC Whistleblower Program differs from that of the Securities and Exchange Commission (SEC)
The CFTC and SEC operate separate whistleblower programs under the Dodd-Frank law of 2010. Each can provide between 10 percent and 30 percent of recoveries to whistleblowers, based on the value of the information they deliver. The agencies do not provide the names of whistleblower award recipients or information that could help identify them.
Following the amendments to the whistleblower rules that became effective July 31, 2017, the CFTC’s award claims review process largely mirrors that of the SEC’s Whistleblower Program. For example, as at the SEC, the CFTC’s Claims Review Staff has responsibility for issuing a Preliminary Determination, setting forth a preliminary assessment as to whether an award claim should be granted or denied. As under the SEC’s program, a whistleblower has an opportunity to request to view the record and contest the Preliminary Determination before the Commission issues a Final Determination.
How does someone become eligible for an award?
To be eligible for a whistleblower award, an individual (or group of individuals) must first submit a Form TCR – Tip, Complaint, or Referral. The Form TCR may be submitted electronically via the website, or by fax or mail.
What it means to provide information “voluntarily”
To provide information voluntarily, you must give information to the Commission before the Commission sends you, your lawyer, or your employer a request, inquiry or demand for the information. You also cannot provide information to the Commission “voluntarily” if you have already received a request, inquiry, or demand from Congress, another regulatory or enforcement agency or a self-regulatory organization (such as the National Futures Association). On the other hand, if you provided information to any such organization before receiving a request, inquiry, or demand, your submission to the Commission will also be considered voluntary. Rule 165.2(o)
What is “original information”?
“Original information” is information not already known to the Commission that is derived from (i) your independent knowledge (information in your possession that is not generally known or available to the public), or (ii) your independent analysis (your examination and evaluation of information that may be publicly available but which reveals information that is not generally known). Also, if the Commission received the same information previously from someone else, your information will not be considered original information unless you can show that you were the “original source” of the information. Rule 165.2(k)-(l)
If you are not sure whether the information that you intend to submit falls within these categories, you should describe such information rather than produce it with your Form TCR.
Please note that, unless certain limited exceptions apply, “independent knowledge” does not include communications that are subject to the attorney-client privilege and information obtained in connection with the legal representation of a client.
What rights do I have if my employer tries to stop me from providing a tip to the CFTC or retaliates against me after coming forward with information about a suspected violation?
Employers may not take any action to impede you from communicating directly with the Commission’s staff about possible violations of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications. Nor may employers discharge, demote, suspend, harass, or in any way discriminate against you because of any lawful act done by you in providing information to the Commission under the whistleblower program or assisting the Commission in any investigation or proceeding based on the information submitted. If you believe that your employer has wrongfully retaliated against you, you may bring a private action in federal court against your employer, within two years of the employer’s retaliatory act. If you prevail, you may be entitled to reinstatement, back pay, litigation costs, expert witness fees and attorney’s fees. The CFTC also has authority under the CEA to bring an enforcement action against your employer for any retaliatory acts.
Other federal and state statutes may offer anti-retaliation protections in addition to those provided by the Commodity Exchange Act. If you have questions about these other statutes, please contact an attorney.
Where do the funds for monetary awards come from?
All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from harmed investors to fund whistleblower awards.