On May 18, the U.S. Commodity Futures Trading Commission (CFTC) posted a Notice of Covered Action (NCA) for a case in which a Virginia man was ordered to pay more than $5 million for committing futures and options fraud. The NCA signals that individuals may now submit whistleblower award claims in connection to the case.
In September 2019, the CFTC charged Leonard J. Cipolla with misappropriating customer funds and fraudulent solicitation in connection with a commodity pool. On May 14, 2021, the U.S. District Court for the Eastern District of Virginia entered a Consent Order for Permanent Injunction, Restitution and Ancillary Equitable Relief against Cipolla, which found him guilty of fraud.
According to the order, and as Cipolla has admitted, from 2009 through 2019 he fraudulently solicited over $7 million from pool participants in connection with futures and options pooled trading. According to the CFTC, “[d]espite having accepted approximately $7,096,303 from pool participants, the order found that Cipolla transferred only approximately $1,462,834 into [his company’s] trading accounts.” Furthermore, while Cipolla promised pool participants substantial returns, “his actual trading between June 2009 and April 2019 was profitable in only two years and resulted in cumulative net losses of approximately $1,462,305,” according to the CFTC.
The order against Cipolla requires him to pay restitution of $5,102,283.51 and imposes permanent trading and registration bans.
Through the CFTC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide original information which leads to a successful enforcement action, are entitled to a monetary award of 10-30% of funds recovered by the government in the action.
By posting an NCA, the CFTC is not making any determination that the relevant case was aided by a whistleblower tip. Rather, the CFTC posts an NCA for any enforcement action that results in monetary sanctions exceeding $1 million. Individuals have 90 days after an NCA is posted to apply for a whistleblower award by submitting a Form WB-APP. For the Cipolla case, individuals have until August 16, 2021 to submit a claim.
Established in 2010 with the passage of the Dodd-Frank Act, the CFTC Whistleblower Program has grown significantly over the past decade and has developed into an important tool in the CFTC’s enforcement efforts. However, its recent success and growth have placed the program in financial crisis.
Due to the recent significant increases of both the number of whistleblower complaints filed with the CFTC and the number of whistleblower awards issued by the agency, the exclusive fund used to pay CFTC whistleblower awards is nearly depleted. According to a letter sent to Congress by the National Whistleblower Center (NWC) and other whistleblower groups, the CFTC’s Consumer Protection Fund is so depleted that “the CFTC has started delaying the processing of whistleblower cases due to a lack of funds and the CFTC Office of the Whistleblower might be forced to furlough staff.”
According to recent reporting, the CFTC is in the process of determining the size of a potential $100 million-plus award for a Deutsche Bank whistleblower. This award is threatening to collapse the whistleblower program.
In response to the CFTC’s financial crisis, a bipartisan group of Senators introduced the CFTC Fund Management Act on February 24. The bill raises the cap on the Consumer Protection Fund to $150 million and temporarily establishes a separate account to house funds used to pay operating and programming expenses.
NWC’s letter to Congress calls for the immediate passage of the CFTC Fund Management Act. The letter was specifically addressed to members of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, the committee before which the bill currently sits.