In a recent series of decisions, the U.S. Commodity Futures Trading Commission has issued millions of dollars in awards to whistleblowers. In August alone, those awards totaled more than $45 million. These awards are an important reminder for businesses to proactively look within and implement effective whistleblower programs to protect themselves from potential enforcement actions. While doing so, businesses should be aware of the implications of the U.S. Supreme Court decision in Digital Realty Trust Inc. v. Somers on the CFTC’s whistleblower anti-retaliation protections.
The CFTC’s Whistleblower Program provides monetary incentives to individuals who voluntarily provide original information relating to possible violations of the Commodity Exchange Act that lead to a successful enforcement action resulting in more than $1 million in sanctions. Whistleblowers can receive between 10 and 30 percent of the monetary sanctions collected. In its most recent annual report to Congress, the CFTC reported that it received complaints relating to issues including virtual currencies, spoofing, manipulation and fraud.
The CFTC defines a “whistleblower” as any individual providing information relating to a violation of the CEA to the CFTC in a manner established by the CFTC. The CFTC’s Regulations provide that an employer cannot retaliate against a whistleblower for providing information to the CFTC or assisting in any CFTC investigation or action based upon such information. The CFTC’s anti-retaliation rules are enforceable in a CFTC proceeding, including where retaliation is in response to a whistleblower providing information to the CFTC after reporting the information through internal whistleblower, legal or compliance procedures.
Businesses should take heed of recent awards, as the CFTC’s Division of Enforcement frequently initiates investigations based on complaints received by its whistleblower office. Over the past two months, the CFTC has been particularly active in issuing whistleblower awards, demonstrating that its whistleblower program has taken root. For example, on July 12, the CFTC announced an award of approximately $30 million to an individual—its largest ever. Four days later, the CFTC announced its first award to a whistleblower living in a foreign country. And on Aug. 2, the CFTC announced three awards totaling more than $45 million. By contrast, over the preceding four years, the CFTC had issued just four awards to whistleblowers. Calling 2018 a “transformative year” for the whistleblower program, the CFTC’s enforcement director expects this trend to continue.
Potential whistleblowers have taken notice. In its August press release, the CFTC reported that both the volume and complexity of whistleblower submissions have increased. Accordingly, businesses should revisit their whistleblower programs to ensure they are equipped to get ahead of possible enforcement actions.
Businesses should create whistleblower reporting hotlines that are accessible to employees globally. The hotlines should offer whistleblowers an opportunity to report issues in a way that preserves whistleblowers’ anonymity while allowing investigators to confidentially follow up with whistleblowers for more detail.
Businesses should have qualified staff available to review complaints and promptly to determine whether the allegations raise serious legal, reputational or financial risks. If so, the reviewers should immediately escalate the complaints for further investigation to an appropriate function such as legal, compliance or human resources, depending on the nature of the allegations. The function conducting the investigation must have sufficient independence and not itself be the subject of the allegations. For investigations of particularly serious allegations, the business should consider retaining external counsel.
Businesses should also have a strong anti-retaliation policy. Depending on the nature of the allegations and whether the whistleblower wishes to remain anonymous, investigators should ensure that the identity of the whistleblower is not revealed where unnecessary. Employees who are the subject of the allegations should be reminded of the anti-retaliation policy. Allegations of retaliation should themselves be promptly investigated and addressed.
Implications of Digital Realty Trust
Businesses should also note the implications of the Supreme Court’s decision in Digital Realty Trust Inc. v. Somers on the CFTC’s whistleblower anti-retaliation protections. In Digital Realty, an employee was terminated after reporting suspected securities law violations to senior management but did not report these suspected violations to the SEC prior to his termination. The Supreme Court explained that Dodd-Frank’s definition of “whistleblower” is clear. It means a person who provides “information relating to a violation of the securities laws to the Commission.” The high court held that the anti-retaliation provision does not apply if a violation is not reported to the SEC; therefore, the employee was not a “whistleblower” under Dodd-Frank.
As a result of the Supreme Court’s decision, in a June 28 release, the SEC proposed amending its whistleblower rules to make them consistent with the Digital Realty decision by requiring that whistleblowers make a written submission to the SEC to qualify for Dodd-Frank’s anti-retaliation protections.
Given the CFTC’s intense focus on whistleblower complaints and the increased incentives in award amounts and frequency, now is a good time for businesses to get ahead of any potential enforcement actions by maintaining robust internal whistleblower programs.
The authors are partners with Murphy & McGonigle. Davis and Walsh previously served in the CFTC’s Division of Enforcement, and Facciponti is a former prosecutor with the U.S. Attorney’s Office for the Southern District of New York.