Last month in the whistleblower blog, we covered a substantial award handed out to an unnamed whistleblower who brought allegations of wrongdoing to the attention of the Securities and Exchange Commission (SEC). The $700,000 whistleblower reward demonstrates the effectiveness of the SEC’s whistleblower program—lots of people from within companies and others working as industry analysts are coming forward with financial fraud tips. As it stands, the same cannot be said for the Commodity Futures Trading Commission or CFTC whistleblower program, which came into existence at the same time as the SEC whistleblower program.
What Is Wrong With the CFTC Whistleblower Program?
According to data obtained by the Wall Street Journal (subscription required), the CFTC whistleblower program has spent more on administrative costs than it has on whistleblower awards. Since 2011, the CFTC whistleblower program has set aside hundreds of millions of dollars in an effort to attract quality information from tipsters from the commodities and futures industry—an industry worth trillions of dollars—and it simply hasn’t been effective.
Funding for the CFTC whistleblower program has come from sanctions levied by the commission. At the end of September, it held $268 million—more than the CFTC annual budget. But the CFTC whistleblower program has only paid out $530,000 in total rewards in the four years of its existence.
The data presented by the Wall Street Journal paints a grim picture of the CFTC whistleblower program, but those with ties to the commission say it is unfair to focus solely on the total rewards payouts when evaluating the program’s efficacy. Some have said the commission is bound by strict rules governing the specifications for a whistleblower reward, rules that are purportedly not as stringent for the SEC whistleblower program.
To its credit, the commission is working to improve its whistleblower program. In an effort to increase awareness, the commission launched a new whistleblower.gov site last month. The CFTC inspector general is also auditing the limited number of whistleblower rewards that have been paid out since the program’s inception.
Nonetheless, the CFTC whistleblower program has failed to even approach the level of success earned by the SEC’s program, even though both programs have been active for the same amount of time.
CFTC Whistleblower Program Not as Effective as SEC Program
Setting up programs to draw out whistleblower tips was an integral part of the government’s response to the financial crisis. With the passage of Dodd-Frank in 2010, the CFTC and the SEC were both poised to benefit from whistleblower programs guaranteeing rewards of 10 to 30 percent of any money collected in successful enforcement actions to tipsters with important information.
Both programs started with spears aimed at combating fraud, but they ended up with drastically different results. Since its inception, the SEC whistleblower program has paid 23 whistleblowers more than $55 million, which is over 100 times more than the CFTC whistleblower program has paid during the same period. The SEC program also benefitted from a landmark case in 2014 that captured the nation’s attention with a $30 million whistleblower reward.
As for the CFTC, its administrative costs are considerably more than the amount it has disbursed in whistleblower rewards. Since 2011, the CFTC spent a reported $4 million on administrative costs for its eight-employee whistleblower unit and a smaller office that handles “consumer outreach.” How specifically that money was allocated has not been reported.
While comparisons between the two whistleblower programs are inevitable, the scrutiny placed on the smaller CFTC whistleblower program might be a bit harsh. For one thing, the SEC has a broader mandate that includes the ability to police public company malfeasance. This alone allows for more opportunity, as a wider range of individuals can come forward with information.
The numbers bear this out: Through September of last year, the SEC has reported a total of 14,116 whistleblowers, compared to only 655 tipsters for the CFTC whistleblower program.
Attorneys Believe CFTC Whistleblower Program Will Gain Traction
With the news of bloated administrative costs, it’s hard not to be cynical about the CFTC whistleblower program. But brighter days appear to be on the horizon—an anonymous whistleblower could receive a substantial payout for providing the CFTC with tips prior to successful enforcement action against a British trader accused of making millions by manipulating the U.S. futures markets. This has led many whistleblower attorneys to believe that the CFTC whistleblower program will hit its stride and produce more results with bigger payouts to tipsters.
It is also worth remembering that the SEC whistleblower program had its fair share of critics in the early days when we weren’t seeing a lot of successful enforcement actions. Now it is largely held up as a beacon of success.