On August 4, 2011, the Commodity Futures Trading Commission (CFTC) approved its Final Rule implementing the whistleblower and bounty hunter provisions applicable to the Commodity Exchange Act (CEA) under Section 748 the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The Final Rule establishes a “Commodity Whistleblower Incentives and Protection” program nearly identical to the whistleblower incentive and protection program created under Section 922 of the Dodd-Frank Act, which provides financial incentives for employees to report violations of federal securities laws.

In May 2011, the Securities and Exchange Commission (SEC) issued its final rule on the whistleblower bounty program under Section 922. As discussed in the Littler Report: Dodd-Frank and The SEC Final Rule: From Protected Employee to Bounty Hunter, the SEC final rule provides a monetary incentive of 10 to 30% of any recovery by the SEC for employees who contribute original information that leads the SEC to recover monetary sanctions of $1,000,000 or more. Based on certain factors whistleblowers may recover between 10% and 30% of any recovery by the SEC. The final rule does not require employees to follow internal reporting procedures before reporting suspected violations to the SEC, but reporting internally is a factor that may increase the whistleblower’s award.

The Dodd-Frank provision applicable to the CEA also creates monetary incentives for whistleblowers, and prohibits employers from discharging, demoting, suspending, threatening, harassing (directly or indirectly) or otherwise discriminating against an employee for: (1) providing information to CFTC in accordance with the commodity whistleblower incentive program; or (2) assisting in an investigation or judicial or administrative action relating to the information provided. Employees alleging violations of this new law may bring an action in the appropriate federal district court. Such claims may not be brought more than two years after the violation complained of by the whistleblower. Relief for prevailing employees under this new private right of action includes reinstatement, backpay plus interest, and special damages, including attorneys' fees, expert witness fees and litigation costs. As discussed in Littler’s Insight: Cementing a Trend: Financial Reform Act Dramatically Expands Whistleblower Protections, one notable difference between sections 748 and 922 of Dodd-Frank is the ability of a commodity whistleblower to appeal any determination regarding an award made by the CFTC, not just awards outside of the 10 to 30 percent range, within 30 days.

According to a fact sheet (pdf) and a Q&A document (pdf) on the final rule, the CFTC-approved regulations are substantially similar to the agency’s proposed rule, but include minor changes to “ensure consistency and promote harmonization” with the SEC’s final rule and program. Other provisions of the rule include the following:

• A whistleblower may appeal certain Commission decisions including award denials and amounts to the appropriate U.S. Circuit Courts of Appeal;
• Whistleblowers may receive an award based upon violations that occurred prior to the date of enactment of the Dodd-Frank Act (July 21, 2010);
• Whistleblowers who submit original information after the date of enactment of the Dodd-Frank Act but before these proposed rules become effective, will also be eligible for an award provided they comply with the Commission’s procedures within one hundred and twenty (120) days of the rules’ effective date;
• A whistleblower who has submitted information after July 16, 2011 may have a private cause of action for employment retaliation of whistleblower activities. Whistleblowers who ultimately are not entitled to an award are still protected by the anti-retaliation provisions;
• The determination of the amount of the award will be in the Commission’s discretion and based upon certain criteria;
• Those not entitled to receive an award under the program include employees of certain listed government, law enforcement and regulatory agencies; a person convicted of a criminal violation related to the underlying judicial or administrative action; a person who submits information that is based on facts underlying a covered action already submitted by another whistleblower; and any whistleblower who fails to submit information to the Commission in the form the Commission requests;
• Whistleblowers will not be eligible for an award if they knowingly and willfully make any false, fictitious, or fraudulent representations to the Commission or another authority in connection with a related action.

These regulations will be effective 60 days after they are published in the Federal Register.

Like the SEC final rule, the CFTC rule does not require employees to first avail themselves of their organization’s internal reporting process. The CFTC acknowledged that a number of comments to the proposed rule criticized the ability of a whistleblower to by-pass an employer’s internal reporting process. Commissioner Jill E. Sommers expressed disappointment regarding this failure during the Agency’s opening meeting to discuss the rule. In a statement, Sommers emphasized:

The primary purpose of a Whistleblower program is not to pay awards to whistleblowers. The primary purpose is to prevent, detect and remedy violations of the Commodity Exchange Act as efficiently and cost-effectively as possible. In order to be efficient and cost-effective in this regard, I believe robust internal compliance programs and thorough internal investigations are absolutely necessary to successfully prevent, detect and remedy violations, particularly given the Commission’s resource restraints. I believe that this rule does not sufficiently address the potential for thousands of new tips or complaints and how this new office will prepare for this outcome. . . . Setting up a Whistleblower program that allows all Whistleblowers to by-pass internal compliance programs will likely deprive such programs of the very information they need in order to be robust and effective. . . . I believe a better approach to our Whistleblower program would have been to require internal reporting as the norm, with the ability for a Whistleblower to bypass internal reporting upon a good faith showing that such reporting would be impracticable or unsafe for the Whistleblower. Another potential approach would have been to require simultaneous reporting internally and to the Commission. This would have ensured that any internal investigation could be conducted under the watchful eye of the Commission, and would have made certain that the Whistleblower knew that the Commission was watching. We did not explore these options, and I believe we should have.

The outcry over the SEC’s similar position on this practice has led to the recent introduction of legislation that would require employees to first report potential misconduct through the company’s internal reporting system before being eligible to cash in on the monetary rewards offered under the Dodd-Frank Act SEC and CFTC whistleblower bounty programs.

More information on the CFTC’s opening meeting and rule can be found here.

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