The CFTC's Division of Enforcement (DOE) issued its Fiscal Year (FY) 2019 Annual Report, which details its 2019 enforcement efforts and reports a slight increase in the number of enforcement actions.
On November 25, 2019, the CFTC's Division of Enforcement (DOE) issued its Fiscal Year (FY) 2019 Annual Report (report), which reports a slight increase in the number of enforcement actions and emphasizes an overall focus on commodities fraud and risk management.
According to the report, the DOE's enforcement highlights during FY 2019 include:
A slight increase in the number of actions filed by the CFTC. The CFTC filed 69 actions in FY 2019, while the average of the past five prior FYs was 67.5. The actions filed during FY 2019 include:
25 for commodities fraud;
16 for manipulative conduct and/or spoofing;
7 for swap data reporting;
6 for protection of customer funds, supervision, and financial integrity;
4 for misappropriation of confidential information, trade allocation schemes, and mismarking;
4 for other trade practices, including wash trades, fictitious trades, and position limits;
In the report, the DOE identified several enforcement themes of FY 2019, including:
A focus on actions aimed at preserving market integrity, with 65% of matters filed involving commodities fraud, manipulative conduct, false reporting, or spoofing. The CFTC notes in the report that it has enhanced its focus on commodities fraud and manipulative conduct, which, according to the CFTC, "strike at the core" of its priorities of "preserving market integrity and protecting market participants."
An upward trend in filings involving manipulative conduct or disruptive trading. In FY 2019, there were 16 such cases filed, which is about three times the amount in prior years.
An emphasis on individual accountability, with 58% of actions involving charges against one or more individuals at financial institutions, proprietary trading firms, and/or managed funds.
Ensuring registrants adopt and implement proper risk-management procedures. For example, in FY 2019:
the CFTC brought its first action against an exempt DCO for making a false statement to the CFTC in connection with the DCO's risk management program; and
the CFTC brought its first action against a swap dealer (SD) for violating rules that require financial institutions to establish a governing body and internal policies to oversee data reporting for SDs.
Targeting misappropriation of confidential information.
Encouraging cooperation and self-reporting, while protecting the integrity of CFTC investigations. According to the CFTC, several of the most significant matters in FY 2019 were developed with the assistance of cooperating witnesses or corporate cooperation. The CFTC notes that cooperation and self-reporting can result in substantially reduced penalties. "Affirmative steps" taken by a party to undermine a CFTC investigation can result in additional enforcement actions or more severe penalties.
Engaging in a multi-year project to enhance data analytics.
In addition, the report notes that the CFTC's whistleblower program continued to experience advancement and growth received 117 claims for awards during FY 2019, about the same as FY 2018, resulting in the issuance of five whistleblower awards amounting to over $15 million.
The CFTC notes that, to date, the whistleblower program has awarded a total of over $100 million to whistleblowers, and estimates that CFTC actions associated with those awards have resulted in judgments totaling over $800 million. In addition, the CFTC estimates that 30% to 40% of the DOE's ongoing investigations involve some whistleblower component. (For details on the CFTC's whistleblower program, see Legal Update, CFTC Adopts Amendments to Whistleblower Program.)
According to the report, the priorities that drove the DOE's enforcement efforts were:
Preserving market integrity.
Promoting individual accountability.
Increasing coordination with other regulators and criminal authorities.