The US Commodity Futures Trading Commission has given its whistleblower program a needed shot in the arm with several recent, attention-getting whistleblower awards.
In just a three-week span, the CFTC issued five separate orders awarding whistleblowers more than $75 million for the information and assistance they provided that led to major enforcement actions and sanctions. These actions are especially welcome considering the total amount the agency previously awarded to whistleblowers since the CFTC whistleblower program was established in 2011: just $10.6 million in four cases.
While the most recent awards are encouraging news, both the CFTC and the US Securities Exchange Commission whistleblower programs have a big problem: The process for making whistleblower awards is far too slow.
For many whistleblowers who have provided information that the CFTC and the SEC have used to undertake successful enforcement actions, the award process is frustrating and discouraging. The process can be akin to a hamster wheel, as whistleblowers who provided information to the agencies and who have submitted all of the necessary paperwork for an award sometimes feel they are getting nowhere closer to receiving an award.
The SEC says that over the past six fiscal years, it has received approximately 110 whistleblower award applications annually that meet all of the documentation and processing requirements. Yet only a total of 55 whistleblowers have received rewards during those six years. At the CFTC, only nine whistleblower awards have been made.
A recent Wall Street Journal story examined the SEC whistleblower award program and concluded that the reward process can take longer than the average time it takes to investigate and close an enforcement case.
Granted, the number of whistleblower submissions filed with the SEC is exploding – nearly 4,500 in fiscal year 2017 alone – burdening already stretched resources.
However, both the SEC and CFTC need to develop ways to speed up the whistleblower award process so that meritorious claims do not take years to resolve.
The SEC last month proposed changes to the award-determination processto make it more efficient. The proposals include barring individuals from applying for awards if they have submitted three frivolous award applications and being able to quickly dispose of whistleblower applications where there is likely to be a denial, such as when an individual never provided information to the SEC.
While those changes may help, both the SEC and CFTC need to do more to improve the award process.
For instance, when multiple whistleblowers have filed claims with the agencies involving the same entity or similar illegal conduct, willing whistleblowers and their attorneys need a process whereby they can try to resolve the allocation of a whistleblower award among themselves, without disturbing the agency’s underlying award determination.
This approach often is followed by the US Department of Justice in False Claims Act (“qui tam”) cases in which there are multiple whistleblowers. In many of those instances, the qui tam whistleblowers reach agreement among themselves as to how they will share any ultimate award in the case.
The SEC and CFTC are prohibited by law from disclosing whistleblowers’ identities. However, the agencies could share the names of the attorneys for whistleblowers with other whistleblower attorneys involved in the matter, if specifically requested to do so by the whistleblowers. This would allow whistleblowers to negotiate the sharing of an award, eliminating much of the delay created by individual requests for reconsideration and appeals.
Meanwhile, the CFTC is counting on its recent whistleblower awards to convince more insiders with knowledge of significant wrongdoing in regulated markets to come forward. That certainly has happened at the SEC as a result of the significant whistleblower awards it has made.
“The Whistleblower Program has become an integral component in the agency’s enforcement arsenal,” said CFTC Chairman J. Christopher Giancarlo in a press release about the $30 million whistleblower award the CFTC made July 12. “We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act.”
There is no doubt that large awards will spur whistleblowers to act. But a steady stream of whistleblower awards that are made within a reasonable time would do even more to convince individuals that the SEC and CFTC programs work for all meritorious whistleblowers – not just a lucky few.