by Andrew Feller and Geoff Schweller
Andrew Feller and Geoff Schweller (photos courtesy of Kohn, Kohn & Colapinto, LLP)
On November 15, the U.S. Commodity Futures Trading Commission (CFTC) released its annual report on its Whistleblower Program and Customer Education Initiatives for the 2024 fiscal year. Since it was established in 2010, the CFTC Whistleblower Program, which offers anonymous reporting channels and monetary awards to commodities whistleblowers, has grown into a critical piece of the CFTC’s enforcement arsenal.
The report details what was a record year for the CFTC Whistleblower Program, with the highest-ever number of both whistleblower tips and award applications received and the most award orders issued in a single fiscal year. Ironically, however, due to its growth and success, the program faces a funding crisis threatening to undermine the program.
Below are major takeaways from the CFTC 2024 Annual Report on its Whistleblower Program:
A Centerpiece of the CFTC’s Enforcement Efforts
According to the report, 42% of all CFTC enforcement matters involve whistleblowers. CFTC officials have continually praised the program and highlighted its importance over the years, but this statistic is the most telling evidence yet of how critical a role the whistleblower program now plays in the agency’s enforcement efforts.
A Staggering Return on Investment
This year’s report reaffirms that whistleblower award programs provide incredible returns on investment for the government, generating significant monetary sanctions paid directly from fraudsters. According to the report, the FY 2024 operating costs for the CFTC Whistleblower Program were $3,595,977. During the fiscal year, the CFTC paid out $42 million to whistleblowers after it collected $162 million in sanctions in the actions aided by the whistleblowers’ disclosures. The $3.5 million budget of the program thus resulted in $120 million of income for the government, a staggering return on investment of approximately 3,400%.
Whistleblower Tips Continue to Increase
Perhaps no statistic from the report better encapsulates the growth of the program than the number of whistleblower tips received during the fiscal year. In FY 2024, the CFTC Whistleblower Program received a record 1,744 whistleblower tips, a 14% increase over the previous record from fiscal year 2023. While as recently as FY 2019 the CFTC Whistleblower Program only received 455 tips, it has now received over 1,000 tips four out of the past five years and has set new records each of the past three.
Crypto Fraud Remains Main Topic of Whistleblower Disclosures
According to the report, whistleblower tips alleging fraud related to cryptocurrency and digital assets remained the number one area during FY 2024, with 28% of all tips received by the agency being on the topic. The CFTC notes that a large portion of these tips “alleged fraudulent crypto and digital assets solicitations and misappropriation, with scams stemming from online communications (e.g. pump and dump, fraudulent representations of opportunities, and refusal to honor customer requests to withdraw funds).” The report further details that “a smaller percentage of whistleblower tips related to registration violations, insider trading, retail sale of metals, spoofing and other types of disruptive trading or market manipulation.”
CFTC Begins Enforcement of Rule Barring the Impediment of Whistleblowing
The report highlights a June enforcement action taken against Trafigura Trading LLC in which the global commodities merchant agreed to pay $55 million to settle allegations of fraud, manipulation, and impeding whistleblowing. The CFTC states that the action “was groundbreaking because it was the first time in CFTC history that the Commission charged a company for using agreements intended to prevent whistleblowers from communicating with the CFTC.” The action signals that, like the SEC, the CFTC is looking to crack down on non-disclosure and other employment agreements which impede whistleblowers from reporting fraud.
Despite Record, Awards Processing Still Needs to Improve
During FY 2024, the CFTC issued 12 award orders, the most it has granted in a single year. However, the growth in the number of awards being issued has not kept up with the growth in whistleblower tips and whistleblower award applications. Given that 42% of all enforcement matters involve whistleblowers, the small number of awards being issued clearly reflects delays in the processing of award applications. Meritorious whistleblower award claims have been sitting in limbo for over 4 years. Congress needs to address these delays to keep the program on track.
Funding Crisis Threatens to Undermine Entire Program
While the CFTC’s 2024 report details a program which is by many measures highly successful, a funding crisis threatens to undermine the entire program. A Congressionally set cap on the fund used to finance the program restricts the amount of collected sanctions which can be placed into it, under most circumstances, at $100 million. Therefore, notwithstanding the billions of dollars of sanctions collected thanks to the program, only a small fraction of that amount has been placed back into the fund. Due to this arbitrary cap on its size, a large whistleblower award could deplete the fund, which would essentially shut down the program. Whistleblower advocates, members of Congress from both parties, and CFTC Chair Rostin Behnam have all called for a Congressional fix to the problem.
An emergency measure passed in 2021 created a separate fund for the financing of the CFTC Whistleblower Office in order to ensure its continued functioning, but that measure expired at the end of FY 2024. To preserve this remarkably successful program, immediate Congressional action is needed to protect the CFTC Whistleblower Program from financial collapse.
Andrew Feller is Senior Special Counsel and Geoff Schweller is Communications Director at Kohn, Kohn & Colapinto, LLP.
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