The CFTC Consults on the Use of Artificial Intelligence
The CFTC has issued a Request for Comment (RFC) seeking industry input on the definition and applications of AI in financial markets covering a broad spectrum of AI use.
Read the blog
What Is It About
Each fiscal year the CFTC publishes a report summarizing whistleblower developments over the year, including insightful statistics on the impact of their whistleblower programme.
Why It's Important
With the increasing importance of whistleblowers as a compliance stakeholder group, the report provides a revealing view into whistleblower trends which energy and commodity firms should be aware of.
Key Takeaways
Whistleblowing complaints reached their highest levels in the whistleblower programme’s history with 1,530 complaints in 2023, representing an increase of roughly 50 percent over the number of tips the WBO received in 2021 and 2020.
Thanks for your interest in our content.
Enjoy the read!
Introduction
The CFTC published its annual Whistleblower report (click here) to Congress as required under Section 23 of the Commodity Exchange Act (CEA).
As a reminder, Section 23 established a whistleblower program permitting the CFTC to pay awards, based on collected monetary sanctions, to eligible whistleblowers who voluntarily provide it with original information about violations of the CEA that lead either to a “covered judicial or administrative action” or a “related action.” A “covered judicial or administrative action” is “any judicial or administrative action brought by the Commission under [the CEA] that results in monetary sanctions exceeding $1,000,000.”
The report requires the CFTC to provide the US congress with updates on a variety of topics including:
- Description of the number of awards granted and the types of cases in which awards were granted during the preceding fiscal year;
- Customer education initiatives that were funded by the Fund during the preceding fiscal year; and
- Audited Financial Statements.
How important are whistleblowers to the CFTC?
CFTC Commissioner Christy Goldsmith, in her statement following the release of the report (click here), observed the importance of Whistleblowers in the CFTC’s ability to conduct investigations:
“Whistleblowers play a vital role in supporting CFTC investigations related to fraud and other illegality. The CFTC could not fully protect customers and markets without whistleblowers. Whistleblowers help identify fraud and other illegality, interpret key evidence, and save considerable Commission resources and time. The faster we can stop fraud, the more we can protect customers from harm.”
How much has the CFTC paid out to whistleblowers?
In 2023, the CFTC granted seven applications for whistleblower awards, totalling approximately USD $16 million, paid to individuals who voluntarily provided original information that led to successful enforcement actions.
Some of the whistleblowers who received awards during FY 2023 provided information leading the CFTC to open the relevant investigations while others provided substantial ongoing assistance and cooperation as the matter progressed.
Commissioner Goldsmith provided statistics on the overall program since inception in 2019 noting:
“Cumulatively, the CFTC has awarded almost $350 million to whistleblowers, with more than $3 billion in enforcement sanctions ordered in cases associated with those awards. This includes $16 million in awards this year, including more than $15 million to two whistleblowers who provided significant information and assistance that led the CFTC to bring separate successful enforcement cases.”
2023 Whistleblower Statistics - increase in Whistleblowing Tips / Complaints & Whistleblowing Reward Applications.
Given the significant incentives the CFTC provides to potential whistleblowers, including providing confidential protection and monetary awards for successful investigations that lead to sanctions, it is no surprise that both Whistleblowing Tips / Complaints and Reward Applications have increased year on year.
- Whistleblowing complaints reached its highest level in program history. The CFTC’s Whistleblowing Office (WBO) received 1,530 complaints in 2023, the highest in the CFTC’s whistleblowing program history, and represents an increase of roughly 50 percent over the number of tips the WBO received in FY 2021 and FY 2020.
- Whistleblowing Award Applications doubled from 2022 to 2023. The WBO received 301 whistleblower award applications setting a new record for the Whistleblower Program and roughly doubling the previous record of 152 applications in FY 2022.
Importance of whistleblowing in Voluntary Carbon Markets.
In a reminder of the importance of fraud in voluntary carbon markets, the CFTC reminds readers of its 20 June 2023 alert (click here) notifying the public about the various types of misconduct and illicit activities that could harm market participants related to voluntary carbon markets. It lists the type of information the CFTC’s WBO will work with market participants on in relation to potential fraud in the carbon markets including, but not limited to:
- Manipulative and wash trading;
- “Ghost” credits;
- Double counting;
- Fraudulent statements relating to material terms of the carbon credits; and
- Potential manipulation of tokenized carbon markets.
Furthermore, the alert stated that individuals who submit such information through the CFTC’s Whistleblower Program may be eligible for certain confidentiality and anti-retaliation protections, as well as monetary awards, if that information leads to the successful enforcement by the CFTC.
We summarise key observations from the report below including:
- WHISTLEBLOWER PROGRAM AND WHISTLEBLOWER AWARDS
- Whistleblower Tips and Complaints
- Whistleblower Award Applications
- CUSTOMER EDUCATION INITIATIVES
- Web Metrics and Materials Published
Compliance Considerations
- WHISTLEBLOWER PROGRAM AND WHISTLEBLOWER AWARDS
Whistleblower Tips and Complaints
During the Period, the WBO received tips and complaints regarding activities including but not limited to:
- Market manipulation;
- Spoofing;
- Insider trading;
- Corruption;
- Illegal swap dealer business conduct;
- Recordkeeping or registration violations; and
- Fraud or manipulation related to digital assets, precious metals, and forex trading.
The majority of tips received in 2023 involved allegations of fraudulent solicitation and subsequent misappropriation of crypto/digital assets (e.g., pump-and-dump schemes, fraudulent representations of moneymaking opportunities, or refusals to honor withdrawal requests).
Whistleblower Award Applications
As noted above, the WBO received 301 whistleblower award applications setting a new record for the Whistleblower Program and roughly doubling the previous record of 152 applications in FY 2022.
The CFTC, in its report, acknowledges that the increase in Reward Applications is likely attributable to the CFTC’s issuance of a record-breaking award of nearly $200 million to a single whistleblower in 2022 which at the time was the largest ever granted under the Dodd-Frank Act and surpassed any award previously paid out by either the CFTC or the SEC since Congress established whistleblower programs at the CFTC and SEC.
- CUSTOMER EDUCATION INITIATIVES
Web Metrics and Materials Published
The CFTC noted the top 5 articles receiving the most traffic on its website (in order of highest to lowest page views) as follows:
- Article: 6 steps to take after discovering fraud;
- Fraud Advisory: Foreign Currency (Forex) fraud;
- Article: Don’t be Re-Victimised by Recovery Fraud;
- Article: Basics of Futures Trading;
- Fraud Advisory: Precious Metals Fraud.
Notably, precious metals fraud and, more broadly, the discovery of fraud were two of the most frequently read articles.
RegTrail Insights
It’s clear that the CFTC relies heavily on whistleblowers to identify and provide information related to fraud and other illegalities. It is publicly promoting financial rewards as an incentive to entice future potential whistleblowers to act.
Firms under CFTC jurisdiction should be aware of the increase in whistleblowing rights for potential whistleblowers and the ramifications including fines if they do not have whistleblowing policies and procedures in place. The report is a reminder of the gravitas the CFTC puts on protecting whistleblowers and the risks and potential fines for non-compliance by firms.
Want to read more?
Request a Demo
Take a short tour of the RegTrail Insights Platform with a free trial for a limited time.