Intending to bring greater transparency to the operation of its enforcement program, the Commodity Futures Trading Commission’s (CFTC or Commission) Division of Enforcement (the Division) recently, for the first time, made public its Enforcement Manual (Manual). The Manual provides market participants, industry professionals and the enforcement bar with insights into the Division’s detections, investigations, and pursuit of violations (and potential violations) of the Commodity Exchange Act (CEA) and the regulations thereunder. According to CFTC Director of Enforcement James McDonald, this move is intended to “promote fairness, increase predictability, and enhance respect for the rule of law.”
The public release of the Manual brings CFTC practice in line with those of other enforcement agencies, including the Department of Justice and the Securities and Exchange Commission (SEC). The Manual provides a roadmap of the life cycle of a CFTC enforcement action, from the opening of an investigation through the Wells process to resolution. Although the Manual provides broad insight into the general policies and procedures that guide the work of the Division’s Staff, it does not provide concrete guidance on how those general policies may be applied in particular cases.
Below, we highlight several of the Manual’s more significant provisions. Continue reading →
New enforcement advisory encourages reporting of foreign corrupt practices that the agency intends to pursue under the Commodity Exchange Act.
On March 6, 2019, the Division of Enforcement (Division) of the US Commodity Futures Trading Commission (CFTC or Commission) announced that it will work alongside the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) to investigate foreign bribery and corruption relating to commodities markets. CFTC Enforcement Director James McDonald announced the agency’s new interest in this area as the Division issued an enforcement advisory on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices.
For companies and individuals who participate in the markets for commodities and derivatives — or whose activities may impact those markets — the CFTC announcement adds a new dimension to an already crowded and complex landscape for anti-corruption enforcement. A range of industries, including energy, agriculture, metals, financial services, cryptocurrencies, and beyond, must now consider the CFTC and the CEA when assessing global compliance and enforcement risks relating to bribery and corruption. This article summarizes the new developments and outlines key considerations for industry participants and their legal and compliance teams. Continue reading →
On February 12, 2019, the Commodity Futures Trading Commission (CFTC or Commission) published for the first time its examination priorities for the coming year. The release of the priorities will provide legal and compliance staff of CFTC-regulated entities greater insight into the Commission’s examination programs and assist them in better preparing for, and successfully navigating, an examination. The Commission bases its priorities on four pillars: (1) effective communication, (2) a risk-based determination of priorities, (3) continuous improvement and (4) efficiency. Continue reading →
Almost two years ago, Judge Richard Sullivan, then a district court judge in the SDNY, presided over a trial in which the CFTC charged prominent trader Don Wilson and his company, DRW, with violating sections of the Commodity Exchange Act (“CEA”) that prohibit commodities manipulation and attempted manipulation. Last month, Judge Sullivan, now a newly-minted judge on the Second Circuit, issued his opinion in the much-watched case, CFTC v. Donald R. Wilson, 13 Civ. 7884 (RJS) (Dec. 3, 2018). Sullivan’s decision finding that the CFTC failed to prove that Wilson’s admitted (and successful) efforts to move the price of an IDEX interest rate swap violated the CEA’s prohibition against manipulation was a serious setback to the CFTC’s efforts to use the seldom-litigated ban against manipulation codified in Section 9(a)(2) of the CEA.
The CFTC’s Division of Enforcement has long been responsible for policing manipulation in the derivatives and commodities markets. For many decades, its primary and, until Dodd-Frank, only, tool in battling manipulation has been the prohibition against manipulation found in Section 9(a)(2) of the CEA.
The prohibition against manipulation found in Section 9(a)(2) of the CEA is notoriously difficult to enforce, requiring the Commission to establish that “(1) Defendants possessed an ability to influence market prices; (2) an artificial price existed; (3) Defendants caused the artificial prices; and (4) Defendants specifically intended to cause the artificial price.” In re Amaranth Nat. Gas Commodities Litig., 730 F.3d 170, 183 (2d Cir. 2013). Continue reading →
On November 15, 2018, the Division of Enforcement (the “Division”) of the U.S. Commodity Futures Trading Commission (“CFTC”) released its Annual Report on the Division of Enforcement (PDF: 1.95 MB) (the “Report”), highlighting the enforcement division’s recent initiatives and reinforcing its focus on cooperation and self-reporting. The Report provides a succinct overview of the Division’s enforcement priorities over the last year, discusses its overall enforcement philosophy, sets out key metrics about the cases brought in the last year, and highlights its key initiatives for the coming year. While the Division’s priorities—preserving market integrity, protecting customers, promoting individual accountability, and increasing coordination with other regulators and criminal authorities—do not mark a departure from prior guidance, the Report does highlight the Division’s particular focus on individual accountability and a few target areas of enforcement. Continue reading →
November 14, 2018 – 7:00 p.m. NYU School of Law: Program on Corporate Compliance & Enforcement As Prepared for Delivery
Thank you for that introduction. I’m happy to be back here at NYU as part of the Program on Corporate Compliance & Enforcement (PCCE). Over the years, the PCCE has brought together some of the best thinking in the enforcement, business, and academic community to develop a richer and deeper understanding of the causes of corporate misconduct, and how enforcement and compliance programs can most effectively deter it. The result is that the work here at the PCCE has been a driver of some of the most significant developments in Enforcement and Compliance.
We’ve followed these developments closely at the Commodity Futures Trading Commission (CFTC). At every stage of our agency’s history, we’ve sought to bring impactful enforcement actions in the markets we regulate, and to ensure we stand ready to meet the challenges presented as these markets continue to evolve. Our most recent challenges have included responding to the dramatic expansion of our jurisdiction under Dodd-Frank in the wake of the financial crisis. Under David Meister, the first post-Dodd-Frank Director of Enforcement, the Division literally wrote the rules that set out some of our new enforcement jurisdiction. With the next Director, Aitan Goelman, the Division brought first-of-their-kind cases under these new rules. And under both Directors’ leadership, we began to define our major priorities and to develop some of the initiatives we rely on today, like the Division’s cooperation program. Thanks to their hard work and that of the dedicated career civil servants who staff the Division, we’re well positioned today to continue to build on those priorities and initiatives. As part of that effort, we’re constantly surveying the enforcement world to identify best practices and to incorporate them into our program. Continue reading →
The CFTC Focused a Series of Recent Enforcement Actions on Manipulation, Aiding and Abetting, Spoofing, and Insider Trading; and the CFTC Announced an Insider Trading and Information Protection Task Force
In recent actions, the U.S. Commodity Futures Trading Commission (the “CFTC”) has continued to pursue cases alleging market manipulation and attempted market manipulation, aiding and abetting of market manipulation, and spoofing. Describing its recent efforts, the CFTC has said that it filed 83 enforcement actions in the last Fiscal Year, representing an approximately 25% increase over each of the prior three years. Notably, the CFTC brought more manipulative conduct and spoofing cases over the past year than ever before, resolving more than 25 such cases. Continue reading →
This post reviews the New York State Office of the Attorney General’s (the “OAG”) Virtual Markets Integrity Initiative Report (the “Report”), which was published on September 18, 2018. The publication of the OAG’s 42-page Report brings to a close its six-month fact-finding inquiry of several virtual currency platforms. The OAG sent out detailed letters and questionnaires to a number of virtual currency platforms seeking information from the platforms across a wide-range of issues, including trading operations, fees charged to customers, the existence of robust policies and procedures, and the use of risk controls. Continue reading →
On July 12 and 16, 2018, the U.S. Commodity Futures Trading Commission (“CFTC”) announced two awards to whistleblowers, one its largest-ever award, approximately $30 million, and another its first award to a whistleblower living in a foreign country. These awards—along with recent proposed changes meant to bolster the Securities and Exchange Commission’s (“SEC” or “Commission”) own whistleblower regime—demonstrate that such programs likely will continue to be significant parts of the enforcement programs of both agencies and necessarily help shape their enforcement agendas in the coming years.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) authorized the CFTC to pay awards of between 10 and 30 percent to whistleblowers who voluntarily provide original information to the CFTC leading to the successful enforcement of an action resulting in monetary sanctions exceeding $1 million. Following the introduction of implementing rules, the CFTC’s program became effective in October 2011. Over the next six-and-a-half years, the CFTC has paid whistleblower bounties on only four prior occasions, with awards ranging from $50,000 to $10 million. The $30 million award announced last week, thus, reflects a significant increase. This week’s award to a foreign whistleblower also represents another first for the CFTC’s program and reflects the global scope of the program. Continue reading →
September 25, 2017 – 6:00 p.m. NYU School of Law: Program on Corporate Compliance & Enforcement / Institute for Corporate Governance & Finance As Prepared for Delivery
Thank you for that introduction. I’m happy to be here with you all today. I want to talk today about some of our priorities for the CFTC’s Division of Enforcement, and in particular about our cooperation and self-reporting program. In just a minute, I’ll talk in some detail about this program. But to frame that discussion, I want to start by talking more generally about our mission in the CFTC and the Division of Enforcement, and some of our priorities going forward. As I get started, please keep in mind that these are my own views and not necessarily those of the Commission or its staff.
CFTC Mission and Division of Enforcement
At the CFTC, our mission is to foster open, transparent, competitive and financially sound markets. A vigorous enforcement program is essential to fulfilling this mission. As Chairman Giancarlo has made clear, under his leadership, there will be no pause, no let up, and no relaxation in the CFTC’s efforts to enforce the law and punish wrongdoing.Continue reading →