The Commodity Futures Trading Commission paid out what is believed to be the largest-ever whistleblower award to an individual—nearly $200 million—who provided credible information to open investigations launched by the CFTC, another U.S. regulator, and a foreign regulator.
The CFTC said in a press release Thursday it determined the whistleblower “significantly contributed to the success of an enforcement action” and the information he or she provided created a “meaningful nexus” to the agency’s ability to complete its investigation and secure a monetary settlement.
According to the CFTC’s order, the tipster provided information to investigators about wrongdoing that would have been otherwise difficult to obtain. Their claim for a reward with a state regulator was denied because the information provided to the CFTC and other regulators was never shared with the state regulator.
The CFTC initially denied the whistleblower’s application for an award as well before changing its decision after the individual timely filed a request for reconsideration.
The award dwarfs the size of previously announced record whistleblower payouts at other U.S. agencies. The Securities and Exchange Commission reached its highwater mark with a $114 million bounty announced in October 2020.
The Internal Revenue Service does not publicly announce its awards; its largest-known payout was $104 million to UBS whistleblower Brad Birkenfeld in 2012. Meanwhile, the largest qui tam whistleblower payout in accordance with the False Claims Act was $250 million split between four individuals.
While the SEC’s whistleblower program has awarded more than $1 billion since it was formed in 2012, the CFTC’s program had paid out approximately $123 million since its formation in 2014—until now.
Stephen Kohn, partner at whistleblower law firm Kohn, Kohn & Colapinto and chairman of the board of directors of the National Whistleblower Center, said he believed Thursday’s payout was the largest ever.
“This award should send a powerful message to all corporate fraudsters that their own employees can and will report frauds and other crimes to law enforcement,” he said. “Let this award be a warning to all those on Wall Street who cheat to make a profit. The new whistleblower laws can and will lead to your detection.”
“The CFTC whistleblower award is mind-blowing. Not only is it the largest CFTC award made, it is the largest whistleblower award ever made by a government whistleblower program,” said Erika Kelton, a whistleblower attorney and partner at Phillips & Cohen.
In preparation for the payout, the CFTC warned Congress the fund it uses to pay whistleblower awards, the CFTC Consumer Protection Fund, would be depleted. Since the fund was connected to the agency’s budget, the regulator warned it might have to shut down its whistleblower operations as a result.
Congress then set aside $10 million from the existing fund to support the agency’s whistleblower program. But that funds the CFTC’s whistleblower program only through October 2022, at which time Congress will have to either separate the Consumer Protection Fund from the CFTC’s operating budget or replenish the budget of its whistleblower program.
Although the CFTC does not identify the case involved, several media outlets, including the Wall Street Journal, recently reported a $100 million-plus payout was coming to a whistleblower who exposed Deutsche Bank’s manipulation of the London Interbank Offered Rate (LIBOR). According to the settlement with the U.S. Department of Justice, numerous Deutsche Bank derivatives traders—whose compensation was directly connected to their success in trading financial products tied to LIBOR—engaged in efforts to move these benchmark rates in a direction favorable to their trading positions. This manipulation occurred from 2003 through 2011.
The case was settled in 2015, with Deutsche Bank paying $2.5 billion in penalties. That included $800 million to the CFTC, $775 million to the Department of Justice, $600 million to the New York State Department of Financial Services, and $344 million to the U.K. Financial Conduct Authority.
Kelton said it was “even more amazing” that Thursday’s record award was made by the CFTC, given the agency’s relatively small size.
“Given the agency’s extensive regulatory portfolio, which includes the derivatives market, large awards can be expected when a whistleblower provides critical information and assistance in major enforcement actions,” she said. “LIBOR settlements are one example.”
In a statement on the payout, CFTC Commissioner Dawn DeBerry Stump cautioned that the agency should be careful in the future when considering sanctions collected by a foreign regulator in determining the final amount of whistleblower awards.
“The sanctions imposed by the foreign futures authority are based on harm caused in the foreign country, not in the United States,” she said. “Of course, a foreign governmental authority may make whistleblower awards available based on collected sanctions in actions relating to violations of its laws. But it is incumbent upon us to make a careful and comprehensive review of the record in a particular whistleblower matter before placing that burden on the Commission’s Customer Protection Fund.”