The CFTC Whistleblower Office released its annual report for FY 2021, revealing a somewhat lower-than-average total of over $3 million in awards, compared to $15 million in FY 2019 and $20 million in FY 2020. But this may be a short lull as the Office had a near-record number of tips and award applications, building a robust pipeline for future awards. The Office also crossed the $1 billion landmark of total monetary sanctions obtained in matters involving whistleblower information since the program’s inception.
The report also described customer outreach activities, including relating to the “meme trading” trend.
The report covered from October 1, 2020 through September 30, 2021. A blockbuster award of nearly $200 million, the CFTC’s largest ever, was issued two weeks after the end of the fiscal year so did not make it into this year’s report.
Awards. The Office issued six awards during the period totaling more than $3 million. The largest single award during the period was $3 million.
In an “important feature,” the Office also issued awards to multiple whistleblowers based on information the whistleblowers first provided to other authorities. As long as the correct procedures are followed, a whistleblower may qualify for an award for reporting information first to another government authority or regulatory body like the SEC or the National Futures Association (NFA), before reporting information to the CFTC.
The Office denied 68 applications, of which 54 related to non-covered actions.
Since the program’s inception, the Office has granted 31 awards totaling more than $123 million. The total amount of sanctions relating to whistleblower awards since inception reached more than $1 billion during the period.
Whistleblower applications and tips. The Office had an active year for whistleblower tips and award applications.
The office received 961 whistleblower tips and complaints on Form TCR, by mail, facsimile, or through the CFTC’s web portal. This was down from 1,030 applications last year but the second-highest number in six years. The office also received 189 supplements to submitted Form TCRs.
The Office also received additional 159 separate non-whistleblower tips and complaints, all of which were forwarded to the Division of Enforcement for evaluation and disposition. The tips encompassed a range of violations including:
- Insider trading
- Position limit violations
- Reporting violations
- False statements to the government
- Failure to supervise
- Recordkeeping violations
- Registration violations
- Illegal swap dealer business conduct
- Wash tradingSolicitation fraud, misappropriation, and other types of fraudUse of deceptive or manipulative devices in trading, spoofing, and other forms of disruptive trading or market manipulation
For matters that progressed to covered actions, the Office received 140 whistleblower award applications on Form WB-APP. This was a tie with last year, which was the highest number in six years.
Whistleblower outreach. The Office shifted many outreach activities to a virtual format due to the COVID-19 pandemic. Staff virtually presented at five public events and posted an alert in April 2021 about corrupt practices in the commodities and derivatives market on the Office’s website, whistleblower.gov. The website received a record number of page views during the period of almost 300,000.
Funding fix. The Office received a reprieve in the form of legislation (S. 409) that allows the program to set aside $10 million for non-awards expenses. Previously, operating expenses came from the same pool as awards. Due to this funding structure, legislators including Sen. Chuck Grassley (R-Iowa) warned that the CFTC’s whistleblower program could collapse or be put on hold in the face of a very large award. The legislation became law on
Customer education. The Office also reported on the activities of the Customer Education and Outreach Branch (CEOB). Formerly the Office of Customer Education and Outreach, CEOB was combined in an agency reorganization with another division to form the Market Participants Division.
Although set back by the COVID-19 pandemic, CEOB continued to interact with customers and stakeholders through advisories, web articles, social media and other means online. To maximize reach, CEOB leveraged multi-agency efforts and partnerships, including with the SEC, NFA, FINRA and the American Association of Retired Persons (AARP).
In response to the “meme trading” trend, in which retail traders took cues from social media message boards and online posts and flooded into certain markets and products, the CEOB published a customer advisory warning about the risks of reacting to Internet hype without an understanding of commodity futures, options, physical cash markets, and managed products, including commodity exchange-traded products.
The CEOB also co-produced an Investor Alert with the SEC about the potential risks of funds with exposure to Bitcoin futures, and published an article warning about “recovery frauds,” a type of advance-fee fraud that targets victims of other frauds.
The CEOB also continued to develop and maintain relationships with key stakeholders in the financial education field, ensuring that it can quickly ramp up its customer education and outreach activities when resources and opportunities become available.