Securities Regulation Daily CFTC proposes to align whistleblower rules with SEC, strengthen protections
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Tuesday, August 30, 2016

CFTC proposes to align whistleblower rules with SEC, strengthen protections

By Lene Powell, J.D.

Saying improvements to its whistleblower rules are needed, the CFTC proposed amendments to strengthen whistleblower protections, including a reinterpretation of its authority to provide that the CFTC has authority to bring an enforcement action against an entity for retaliation against a whistleblower. The agency also proposed revisions relating to the awards process and eligibility. The proposed changes would bring the CFTC whistleblower program more in line with the SEC’s program (Whistleblower Awards Process, RIN 3038–AE50).

Whistleblower protections. The Commission proposed to set aside an interpretation it made during the original 2011 rulemaking relating to retaliation against whistleblowers. In 2011, the Commission stated that it lacked statutory authority to bring an enforcement action against an entity that retaliates against a whistleblower as a separate and independent violation of the Commodity Exchange Act (CEA).

According to the CFTC, some have criticized the 2011 interpretation as inconsistent with the SEC’s interpretation of its authority. As a result, whistleblowers enjoy protection from retaliation through SEC enforcement action under the securities laws, but no protection through Commission enforcement action under the CEA. The interpretation also does not square with CEA Section 23(h)(1)(A), which establishes that retaliation is in fact a separate violation of the CEA. In addition, it overlooks the Commission’s general authority to prosecute violations of CEA provisions and the Commission’s rules and orders.

To make clear that the CFTC has authority to bring enforcement actions for retaliation and otherwise strengthen protections, the Commission proposed the following amendments:

  • add new §165.20(b) to implement the Commission’s enforcement authority under CEA section 23 and 17 CFR part 165;
  • add new §165.19(b) to prohibit the enforcement of confidentiality and pre-dispute arbitration clauses regarding actions by potential whistleblowers in any pre-employment, employment or post-employment agreements; and
  • add new § 165.20(a) and (c) to prohibit employers from threatening or harassing or retaliating against individuals who participate in the Commission’s whistleblower program, irrespective of whether those individuals qualify for an award or report internally before providing the Commission with information.

Award eligibility. The proposed amendments would make a number of changes relating to eligibility for award, including:

  • revise §165.5 to clarify that a claimant may receive an award in a Covered Action, in a related action, or both. To prevent "double-dipping," the Commission would not make an award to a claimant for a related action if the claimant was granted an award by the SEC for the same action under the SEC’s whistleblower program;
  • revise §165.5 to clarify that a claimant may be eligible for an award by providing the Commission original information without being the original source of the information;
  • revise §165.2(1) to extend the timeframe from 120 to 180 days that a whistleblower has to file a Form TCR after previously providing the same information to other specified entities; and
  • revise §165.5(c) to provide that the Commission has discretion to waive procedural rules upon a showing of extraordinary circumstances.

Review process. Under the current process, the Commission reviews applications that are facially ineligible for award due to various fundamental defects. To reduce this administrative burden, the proposed rules would eliminate the Whistleblower Award Determination Panel and put designated claims review staff in charge of the review process.

Assisted by the Whistleblower Office, claims review staff would analyze a claimant’s eligibility and propose a determination of grant or denial of an award, including award amount. The claimant would be able to contest the determination and see the documents that formed the basis of the review, as well as provide additional documentation or request a meeting with the Whistleblower Office. The Office of General Counsel would review proposed determinations for legal sufficiency, and the Commission would be notified. If no Commissioner requested review, the proposed determination would become the final order of the Commission. If the Commission chose to review, it would issue a final order.

The proposed rules would also make related revisions to staff authority and confidentiality requirements, as well as various technical and conforming amendments.

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