Aim of the Updated Advisory
In his speech, McDonald stated that the purpose of the CFTC’s new policy is to encourage market participants to work together with regulators to achieve an optimal outcome for all parties. He explained that in order to “achieve optimal deterrence,” the Division “needs[s] the buy-in from the communities [it] police[s].” By achieving buy-in from commodities market participants, the Director hopes to place the Division of Enforcement in a better position to identify wrongdoing after it has occurred, and to deter or prevent future violations. Under the Updated Advisory, self-reporting is no longer under the cooperation umbrella, but rather its own separate category.
Self-Reporting
Market participants that become aware of misconduct or regulatory violations must consider the merits of self-reporting this information to the CFTC. If they decide to go forward with a self-report, they must follow these guidelines to maximize their chances of receiving full credit:
- The self-report must be made to the Division of Enforcement within a reasonably prompt time following discovery of the violation or misconduct.
- The self-report must be entirely voluntary (i.e., without an imminent threat of disclosure or a government investigation, or a legal obligation to report).
- The self-report must include all relevant facts known to the company at the time of the disclosure.
Cooperation
Even if a market participant does not self-report misconduct to the CFTC, it may still receive cooperation credit, just not as much. The CFTC will consider the following in rewarding cooperation credit:
- Whether the company fully cooperated with the Division of Enforcement throughout the entire investigation process. This includes providing specific details and facts to the Division. McDonald noted that “[f]ull cooperation requires an active effort to find all related wrongdoing, and not taking a squinty-eyed view of the facts to minimize the misconduct or avoid disclosures.”
- Whether the cooperation was proactive rather than reactive. The Division is looking for active assistance from the company, including attributing wrongdoing to specific individuals.
- Whether the company “timely and appropriately” remediated.
The Division intends to work with companies to achieve full cooperation. McDonald commented that the Division will explain its expectations to the market participant under investigation at the outset and work with them on remediation.
Conclusions
Market participants should welcome the Updated Advisory because it offers additional clarity on how the Division of Enforcement will determine the appropriate civil monetary penalty in a given enforcement action. However, much remains unsaid. For example, although McDonald noted that companies might receive a 50 percent to 75 percent reduction for self-reporting and fully cooperating throughout an investigation, the CFTC has not always been consistent in calculating penalties, nor has it provided clear guidance on how a given civil monetary penalty is calculated. While other agencies, such as the Federal Energy Regulatory Commission, have issued penalty guidelines that frame the agency’s calculations, the CFTC has not done so.
In his speech, McDonald emphasized his goal of incentivizing market participants to report misconduct and cooperate with regulators. The Updated Advisory aims to make these decisions easier for decision-makers who might otherwise decide to roll the dice. Market participants should carefully consider the merits of self-reporting misconduct and cooperating with the CFTC throughout the investigation process. Given the significance of the 50 percent to 75 percent reduction in fines that is theoretically available, it is important that companies work together with counsel to ensure that they are able to obtain the best possible settlement outcome.
- The Updated Advisory is available here. The January 2017 Advisory for Companies is available here, and the January 2017 Advisory for Individuals is available here.
- A transcript is available here.
Client Alert 2017-240
