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CFTC Adopts Whistleblower Program Rules

Thursday, August 25, 2011

Sima Saran Ahuja | Bloomberg Law CFTC Final Rules for Implementing the Whistleblower Provisions of Section 23 of the Commodity Exchange Act (Aug. 15, 2011) The Commodity Futures Trading Commission (CFTC or Commission), pursuant to Section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), adopted rules establishing a whistleblower program. The new program implements Section 23 of the Commodity Exchange Act of 1936 (CEA), and requires the CFTC to pay monetary awards to whistleblowers that voluntarily provide original information to the Commission about a violation of the CEA, which leads to the successful enforcement of a CFTC covered judicial or administrative action (or successful enforcement of a related action), resulting in monetary sanctions exceeding $1 million. The final rules will be effective 60 days from publication in the federal register (Effective Date).

Determination of Award

The CFTC explained that the final rules reflect its efforts “to ensure consistency and promote harmonization” with the Securities and Exchange Commission’s (SEC) whistleblower program which recently became effective. See Bloomberg Law Reports®—Securities Law, SEC’s New Whistleblower Program Takes Effect (Aug. 18, 2011). For example, a CFTC award amount, similar to SEC rules, will be between 10 to 30 percent of the sanction collected in an action that is based upon the original information provided by the whistleblower. Information is considered original if it is derived from the whistleblower’s independent knowledge, and not known to the Commission from any other source. The CFTC may, in its discretion, consider other criteria in determining the award amount. For example, it may consider the significance of the information, degree of assistance provided in support of an action, and programmatic interest of the CFTC in deterring violations of the CEA.

Exclusions

Original information submitted by persons with legal compliance, audit, supervisory, or governance responsibilities are excluded from the CFTC’s whistleblower rules. Further, a whistleblower will not collect an award if they knowingly and willfully make any false, fictitious, or fraudulent representation to the Commission. Also excluded are (1) employees of certain listed government, law enforcement, and regulatory agencies; (2) a person convicted of a criminal violation related to the underlying action; (3) a person who submits information that is based on facts underlying a covered action already submitted by another whistleblower; and (4) any whistleblower who does not comply with CFTC procedures to submit information.

Internal Reporting Incentives

In response to numerous comments suggesting that whistleblower rules may hamper company systems for internal reporting of potential misconduct, the Commission included provisions in the final rules to incentivize internal reporting by whistleblowers. While the CFTC determined that “it is inappropriate to require whistleblowers to report violations internally to be eligible for an award,” it recognized the importance of internal compliance and reporting systems. Not wanting to discourage employees from using these systems, the final rules provide that, when considering an appropriate award, the CFTC will consider whether the whistleblower provided information to the company or interfered with internal systems. Moreover, if a whistleblower reports to the company and that company later self-reports to the CFTC, all information provided by the entity will be attributable to the whistleblower.

Anti-Retaliation Protections

The CFTC’s whistleblower rules prohibit an employer from engaging in retaliation against a whistleblower regarding any terms and conditions of employment because a whistleblower has provided information to the CFTC, or assisted in the investigation in any CFTC action based upon information provided by the whistleblower. In addition, a whistleblower who has submitted information after July 16, 2011, may have a private cause of action for employment retaliation of whistleblower activities. Ineligibility to receive a whistleblower award from the Commission award does not preclude application of anti-retaliation protections.
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