Authored by Jack Fischer
Concerns over the sustainability of Commodities Future Trading Commission’s (“CFTC”) Whistle Blower Program (the “Program”) were temporarily alleviated when President Joe Biden signed a Senate bill to transfer $10 million to the CFTC Consumer Protection Fund (“the Fund”) in July 2021. The highly successful program was created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which was a direct response to the 2008 financial collapse. As a result, whistleblowers may be eligible for an award when they voluntarily provide the CFTC with original information about violations of the Commodity Exchange Act (CEA) that leads the CFTC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.
Per the Program’s guidelines, a whistleblower award can range from 10% to 30% of the money collected in the CFTC's enforcement action or a related action. Since its creation, the Fund has awarded approximately $330 million to over 250 different whistleblowers. The vital tips provided in these cases have resulted in the recovery of over $3 billion related to criminal and fraudulent activity. All whistleblower awards are paid from the Fund as established by Congress and financed entirely through monetary sanctions paid by violators.
In recent years, the thriving program hit a snag when a substantial influx of tips and awards created a major funding crisis. By the original ruling, the Fund was capped at $100 million and could only be replenished when the Fund fell below that amount. The $100 million threshold was deemed sufficient for nearly a decade – but like any successful program or business, it must change with the times to survive.
In 2012, when the Fund first began accepting tips, only 58 individuals filed complaints. This led to the Fund’s first reward of $240,000, which posed no significant threat to the Fund’s liquidity and set a false assumption that all future rewards would be similar in size. In 2020, more than 1,000 whistleblowers filed complaints with the CFTC, and in one instance, it granted almost $200 million to a single whistleblower. Given the funding restrictions, the CFTC will be required to pay the award in at least two separate installments. The astronomical growth since the Fund’s inception, however, did not result in a single dollar increase in the size of the Fund, or any changes in legislation impacting the Program.
Given the substantial growth in award requests and the limit on available funding, concerns began to grow that there was limited incentive for whistleblowers to voluntarily provide vital information. President Biden’s signature created a “Band-Aid” solution, but no long-term changes. It is especially noteworthy that over half of the $330 million awarded since the Fund’s inception was paid in a single year (2020). This concerning trend poses a significant threat to the future of the Fund and demonstrates that drastic action is needed for prolonged success.
The Program was originally created to thwart fraudulent cases and reward those willing to provide key details to prosecutors. The public trust in the Program has grown tremendously since 2010, as evidenced by the rising number of complaints, but the risk of a lack of funding could stop the program in its tracks. Given the lack of funding, claims have already begun to be delayed. The longer whistleblowers are required to wait for their rewards, the less likely individuals would be willing to come forward in the future. This development in the prolonged processing of requests will only grow and eventually become too significant to overcome.
Ultimately, the CFTC seeks to limit the occurrence of fraudulent cases. To accomplish this goal, whistleblowers must continue to have the courage to provide information that is used in bringing successful enforcement actions. Providing further funding to the Program, or changing the payout limit, is vital to the ongoing success of the Program.
For further information and statistics regarding the Program, refer to the CFTC website here