New CFTC Guidance Proposes a Roadmap for Reduced Fines

The Commodity Futures Trading Commission recently issued new Guidance that makes it clear that companies will be rewarded for good behavior...

The Commodity Futures Trading Commission (CFTC or Commission) recently issued new Guidance that makes it clear that companies will be rewarded for good behavior. The CFTC’s Division of Enforcement Guidance specifically explains how companies that self-report violations, cooperate with investigators, and remediate their issues can qualify for a substantial reduction of penalties in subsequent enforcement proceedings. 

CFTC Release No. 8235-20 announced that Guidance on factors used in evaluating corporate compliance programs would be published in the Agency’s Enforcement Manual.  A prior Release, 8165-20, memorialized existing CFTC enforcement practice in recommending civil monetary penalties (CMPs).  These Releases outline the CFTC’s evaluative approaches to penalty recommendations and include:

• Gravity of violation
• Aggravating and mitigating factors
• Other considerations – was misconduct self-reported, remediated, including whether responsible individuals were appropriately disciplined.

“As our historic performance during Fiscal Year 2020 demonstrates, the CFTC does not hesitate to take strong enforcement action when necessary to ensure compliance with federal law,” Chairman Heath P. Tarbert said in a press statement. “The CFTC also will not hesitate to recognize publicly when a registrant or market participant engages in meaningful acts of self-reporting of misconduct, cooperates during investigations, and remediates. Ultimately, the purpose of the CFTC’s enforcement program is to foster a culture of compliance within the marketplaces we regulate. This staff Guidance furthers that goal by ensuring the public understands the levels of recognition the CFTC may provide in its enforcement orders.”

CFTC Guidance Recognizes Importance of Self-Reporting, Cooperation, and Remediation

The CFTC Division of Enforcement (DOE) guidance outlines how, and in what circumstances, its staff will recommend penalty reduction.  The Guidance provides a useful roadmap for companies who may be facing enforcement and breaks ground by being published in the Enforcement Manual and becomes binding on enforcement staff. The CFTC Guidance follows a line of similar enforcement policy and practices involving the self-reporting and remediation of violations followed by the SEC, OFAC, DOJ and FINRA. Below are the four potential scenarios and how the CFTC could be expected to respond:

1. No self-reporting, cooperation, or remediation

Where a respondent has not self-reported, cooperated with a Division’s investigation, or remediated in accordance with the self-reporting and cooperation advisories issued by the Division (Advisories), the Division will not recommend that the Commission’s enforcement order publicly recognize self-reporting, cooperation, or remediation. The fact that the Division does not recommend recognition of cooperation does not mean that the respondent was uncooperative or obstructive. Rather, it merely indicates that the respondent did not cooperate in a manner that materially advanced the Division’s investigation or otherwise met the factors set out in the Advisories.

2. No self-reporting, but cognizable cooperation and/or remediation that warrant recognition but not a recommended reduction in penalty

The Division may recommend that the CFTC recognize a non-self-reporting respondent’s cooperation or remediation in its enforcement order without a recommendation that the cooperation or remediation be reflected in the form of a reduced penalty. To constitute cognizable cooperation or remediation warranting this ‘second’ level of recognition, the respondent must satisfy one or more of the factors set out in the Advisories, but the cooperation would not have materially assisted the Division’s investigation in the manner required to warrant a recommended reduction in penalty. It will be insufficient to warrant recognition in this context if the respondent has merely done what is required by law.

In such cases, the Division will recommend the following language be included in the summary of the CFTC enforcement order, with cooperation or remediation being recognized as appropriate to the particular matter: “In accepting Respondent’s offer, the Commission recognizes the cooperation of [name of Respondent] with the Division of Enforcement’s investigation of this matter. The Commission also acknowledges Respondent’s representations concerning its remediation in connection with this matter.”

3. No self-reporting, but substantial cooperation and/or remediation results in a reduced penalty

During an investigation, where a respondent provides a substantial level of cooperation that materially advanced the Division’s investigation in accordance with the Advisories, and/or engaged in substantial remediation to address the misconduct and materially develop or strengthen related internal controls.

On these facts, the Division could recommend the following language be included in the summary of the order, with cooperation or remediation being recognized as appropriate to the particular matter: “In accepting Respondent’s Offer, the Commission recognizes the substantial cooperation of [name of respondent] with the Division of Enforcement’s investigation of this matter. The Commission also acknowledges Respondent’s representations concerning its remediation in connection with this matter. The Commission’s recognition of Respondent’s substantial cooperation and appropriate remediation is further reflected in the form of a reduced penalty.”

4. Self-reporting, substantial cooperation, and remediation results in a substantially reduced penalty

Where a respondent has self-reported, substantially cooperated in a manner that materially advanced the Division’s investigation, and remediated in accordance with the Advisories, the Division will recommend the most significant reduction in penalty to the CFTC.

In such cases, the Division will recommend the following language be included in the summary of the Commission enforcement order: “In accepting Respondent’s Offer, the Commission recognizes the self-reporting and substantial cooperation of [name of Respondent] in connection with the Division’s investigation of this matter. The Commission also acknowledges Respondent’s representations concerning its remediation in connection with this matter. The Commission’s recognition of Respondent’s self-reporting, substantial cooperation, and appropriate remediation is further reflected in the form of a substantially reduced penalty.”

Key Takeaway

The CFTC’s Guidance once formally added to the Enforcement Manual outlines an approach similar to other federal agencies, including the Department of Justice and the Securities and Exchange Commission. The bottom line is that regulators have the ability to ‘reward’ companies with reduced enforcement penalties that have established a culture of compliance including written policies/procedures, supervisory structure and oversight including the appropriate internal discipline of actable individuals, self-report misconduct and cooperate fully in their investigations. Therefore, if you think that your company has made a compliance mistake, it is imperative to be proactive in remediating, self-reporting and the ability to establish the facts warranting relief.

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Paul Lieberman, or the Scarinci Hollenbeck attorney with whom you work, at (201) 896-4100.