On September 29, the U.S. Commodity Futures Trading Commission (CFTC) issued eleven Notices of Covered Actions (NCAs) covering a $710 million settlement with eleven major financial institutions including Bank of America, Goldman Sachs, and Deutsche Bank. The CFTC charged the institutions with recordkeeping and supervision failures related to the widespread use of unapproved communication methods.
The NCAs signal that the CFTC Whistleblower Program is now accepting whistleblower award applications for the enforcement actions. Through the program, qualified whistleblowers, individuals who voluntarily provide the agency with original information that contributes to a successful enforcement action, are entitled to monetary awards of 10-30% of the funds collected in the action.
The CFTC announced that it filed and settled the charges against the institutions on September 27. In addition to Bank of America, Goldman Sachs, and Deutsche Bank, the charged institutions were Barclays, Cantor Fitzgerald, Citi, Credit Suisse, Jefferies, Morgan Stanley, Nomura, and UBS.
Under the Dodd-Frank Act’s related action provisions, CFTC whistleblowers whose information is also used by another agency in an enforcement action may qualify for a whistleblower award of 10-30% of the funds collected in this related enforcement action. On September 27, the SEC announced a $1.1 billion settlement with the same 11 institutions over charges based on the same alleged behavior.
The CFTC alleges that, over a period of years, each of the institutions “failed to stop its employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text, WhatsApp or Signal.” In addition to this widespread use of unapproved communication methods, the CFTC alleges that the institutions failed to properly keep records of these messages despite being required to do so because they related to firm business.
“The Commission’s recordkeeping and supervision requirements ensure the safety and integrity of the U.S. derivatives markets and protect customers and market participants,” said CFTC Chairman Rostin Behnam. “As demonstrated today, the Commission will vigorously pursue registrants who fail to comply with their core regulatory obligations and hold them accountable.”
“Recordkeeping requirements are key to the Commission’s oversight of registrants and a registrant’s disregard of its obligations threatens the Commission’s ability to effectively and efficiently conduct examinations and investigations,” added Acting Director of Enforcement Gretchen Lowe. “The Commission continues to focus on the importance of recordkeeping, supervision and other regulatory obligations. Registrants and other market participants subject to the federal commodities laws and regulations are encouraged to examine their own internal controls and supervision to ensure they are in compliance.”
“Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” said SEC Chair Gary Gensler. “Since the 1930s, such recordkeeping has been vital to preserve market integrity. As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws.”
Since issuing its first award in 2014, the CFTC has awarded approximately $330 million to qualified whistleblowers. In August, whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto published the findings of a cost-benefit analysis of the CFTC Whistleblower Program which found that the program has had a total profit of over $2.6 billion.
CFTC NOTICES OF COVERED ACTIONS
CFTC Orders 11 Financial Institutions to Pay Over $710 Million for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods
SEC Charges 16 Wall Street Firms with Widespread Recordkeeping Failures
Total Profit of CFTC Whistleblower Program Exceeds $2.6 Billion, New Research Shows