CFTC Division of Enforcement Director James McDonald provided some additional insights, details, and color regarding the division’s recent efforts to encourage self-reporting and cooperation among industry participants at the 9th Annual Chicago-Kent College of Law Conference on Futures and Derivatives held during the first week of November. In his remarks to an audience consisting primarily of the legal and compliance professionals serving the futures and derivatives industry, McDonald echoed many of the themes he articulated in a speech made before the NYU Institute for Corporate Governance and Finance in September of this year.
While previously indicating that a prospective respondent would receive a “substantial reduction in the penalty” that would otherwise be applicable in exchange for self-reporting, cooperation, and remediation, McDonald went somewhat further, explaining that the discount in the civil monetary penalty would run in the 50-75 percent range, generally speaking, provided the self-reporting thresholds required by the division were satisfied.
Additionally, while noting that any cooperation must be full and substantial, McDonald indicated that the division will not require nor request that any party waive its attorney client or work product privileges, when queried by an audience member. However, he noted, a firm may be requested to share the non-privileged portions of an investigative report in connection any internal investigation.
McDonald echoed a number of other points which have been part and parcel of the division’s campaign to encourage self-reporting and cooperation, including:
- a self-report must be made in a timely manner;
- there is no imminent threat or likelihood that the CFTC would otherwise learn of the purported wrongdoing;
- any cooperation must be full and substantial;
- the self-reporting cannot be otherwise mandated or required to be disclosed;
- the Division of Enforcement will expect remedial steps to be taken regarding the violation as well as undertakings to avoid similar occurrences in the future;
- an industry participant seeking the benefits associated with self-reporting should make contact directly with the Division of Enforcement (although a report to the NFA might suffice in some instances); and
- the Division of Enforcement will make it abundantly clear in terms of what it expects in order to be entitled to the self-reporting and cooperation benefits, and will apprise a prospective respondent if it views the party as veering off track.
Mariotti, who presented a session on conducting internal investigations at the conference, suggested that industry participants exercise caution when exploring self-reporting options, noting that CFTC’s approach lacks the specificity and mathematical certainty regarding the level of the benefit a respondent could expect in exchange for cooperation. “In a criminal case, I know exactly what type of credit my client will receive in exchange for his cooperation. And that’s important,” Mariotti observed.
While Director McDonald indicated that the division will not commit to specific penalty reduction amounts in exchange for cooperation, he insisted that industry participants who approach the division in connection with the self-reporting/cooperation initiative will be dealt with fairly. He reiterated, “The division will not play a game of ‘gotcha.’”
McDonald remains optimistic. He noted that in his travels and meeting with industry leaders, he continually hears that companies are striving to build “cultures of integrity.” When asked about industry response and feedback to the initiative and his remarks at NYU back in September, he responded, “It’s too early to tell, but the early indications look good.”
McDonald remains optimistic. He noted that in his travels and meeting with industry leaders, he continually hears that companies are striving to build “cultures of integrity.” When asked about industry response and feedback to the initiative and his remarks at NYU back in September, he responded, “It’s too early to tell, but the early indications look good.”