On October 2, a significant milestone was reached in the Voluntary Carbon Markets (VCMs) regulatory landscape. The U.S. Commodity Futures Trading Commission (CFTC), in a historic move, announced its first enforcement action against VCM fraud. The CFTC filed a complaint against Kenneth Newcombe, former CEO and majority shareholder of Washington, D.C.-based carbon credit project CQC Impact Investors LLC (CQC), for fraud and false reports on voluntary carbon credits. The CFTC also settled charges against CQC and against Jason Steele, CQC’s former Chief Operating Officer.
VCMs are developing as a potential solution to rising carbon emissions, with private projects designing decarbonization initiatives and then receiving carbon credits in proportion to their reported GHG reductions, where one carbon credit represents one metric ton of carbon dioxide removed from the atmosphere. The Newcombe and CQC complaints stemmed from alleged fraud in the registration, credit issuing, verification, and implementation phases.
The CFTC claimed that Newcombe exaggerated the effectiveness of CQC’s emissions reduction projects by installing efficient cookstoves and LED light bulbs in sub-Saharan Africa, Asia, and Central America. Newcombe and CQC allegedly obtained millions more carbon credits than their projects were entitled to by reporting false and misleading information to at least one carbon credit registry and third-party reviewer. Newcombe faces civil monetary penalties, disgorgement, permanent trading and registration bans, and more. In a settlement with the CFTC, CQC paid a $1 million civil monetary penalty and agreed to address other compliance provisions.
While these first actions demonstrate a major step forward in the CFTC’s progress in fighting manipulation and fraud in VCMs, they also highlight the crucial role of whistleblowers in this fight. The press release urged whistleblowers to contact the Whistleblower Office with tips related to carbon market misconduct, echoing an alert to whistleblowers to report Commodity Exchange Act (CEA) violations in the carbon markets. It also outlined common types of fraud to be on the lookout for, emphasizing that everyone has a part to play in maintaining the integrity of these markets.
Through the CFTC Whistleblower Program, individuals may anonymously report potential violations of commodities laws. Qualified whistleblowers, individuals who voluntarily provide original information that leads to a successful enforcement action, are eligible to receive monetary awards of 10-30% of the funds collected in the action.
Further Reading:
Whistleblowers are Key to CFTC’s Priority of Combating Voluntary Carbon Market Fraud
CFTC Seeking Whistleblower Tips on Carbon Market Manipulation