Risk Management and Crisis Response Blog

Commodity Futures Trading Commission announces major whistleblower awards as the Securities Exchange Commission dials back payouts

Aug 24, 2018 3 MIN READ

The U.S. Commodity Futures Trading Commission (CFTC) announced on August 2, 2018 that it had made multiple whistleblower awards totalling more than $45-million. The statement comes on the heels of the CFTC’s announcement last month that it had issued its largest ever award to a whistleblower totalling $30-million. While CFTC seems poised to make increasingly large awards going forward, the SEC looks ready to head in the opposite direction, with proposed amendments to its whistleblower program that would give the regulator greater discretion to limit payouts in certain circumstances. As the Ontario Securities Commission’s whistleblower program ramps up, the evolving approaches of these more mature whistleblower programs in the U.S. will continue to be of interest north of the border.

A transformative year for the CFTC’s whistleblower program

The CFTC regulates the multitrillion dollar futures and option markets. Like the SEC, the CFTC’s whistleblower program was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, with whistleblowers eligible to receive between 10 percent and 30 percent of the amount of monetary sanctions the CFTC collects for a successful enforcement action that results from original information submitted by the whistleblower to the CFTC. While the SEC’s and the CFTC’s whistleblower programs are similar, the awards that the SEC has announced have tended to be considerably larger than the CFTC’s payouts.

However, in announcing the awards, the Director of the CFTC’s Division of Enforcement described the significant progress the CFTC’s whistleblower program has made so far in 2018, calling it a “transformative year” and noting that he expects the trend to persist as the CFTC “continues to receive increasing numbers of high-quality whistleblower tips.” Indeed, prior to the flurry of awards just announced, the CFTC had issued only a handful of awards totalling around $11-million.

In keeping with the CFTC’s confidentiality policy and its mandate to protect the identities of whistleblowers, it did not disclose the name of the enforcement action in which the whistleblower provided information, the award percentage granted to the whistleblower, or the exact dollar amount of the award granted.

SEC proposes to reduce awards payable

In June 2018, the SEC issued for comment proposed amendments to its whistleblower program that would have the effect of limiting the payouts to whistleblowers in certain circumstances. Under the current program, the SEC is required to pay a whistleblower between 10% and 30% of the sanctions recovered, with limited discretion by the Commission to depart from that range. This percentage-based approach has led to very large awards, as we have discussed in prior posts.

The proposed amendments would grant the Commission greater discretion in instances where the sanction amounts are greater than $100-million, or where awards to whistleblowers would be less than $2-million. In other words, the Commission would realize more flexibility to limit the staggeringly large awards that result by a near-automatic application of a percentage-based formula to a major sanction amount. Conversely, the Commission could exercise its discretion to “top up” awards for whistleblowers who might see relatively small payouts in cases where sanctions are minor. Whether the proposed amendments will ultimately be adopted, and in what form, remains to be seen.

Whistleblower awards in Ontario

As we have previously discussed, the Ontario Securities Commission program appears to be gaining steam, though no awards have been announced to date. The OSC’s whistleblower program caps amounts whistleblowers are entitled to receive at $5-million, eliminating the possibility for the kinds of stratospheric payouts seen in the U.S. Nevertheless, observers will be keen to see the OSC’s program begin to bear fruit for the Commission itself and for the whistleblowers who come forward to report wrongdoing.