On August 30, 2016, the CFTC issued a proposed rule that would revise the whistleblower program under Part 165 of the CFTC's regulations. The CFTC is proposing revisions to several parts of its whistleblower program to address inconsistencies between its program and the SEC's whistleblower program.

Adopted in 2011 as part of the implementing regulations under Section 23 of the Commodity Exchange Act (CEA), the CFTC's whistleblower program provides for the payment of awards to individuals who voluntarily provide the CFTC with original information about a violation of the CEA that leads to a successful enforcement action (see Legal Update, CFTC Approves Final Rules on Whistleblower Incentive and Protection). Successful enforcement actions are those that result in either:

While the CFTC has discretion in deciding the monetary amount awarded to the whistleblower, the amount of a whistleblower award under the CFTC program must be between 10% and 30% of the monetary sanctions imposed in the related enforcement or other action.

Retaliation against whistleblowers. The proposed rule revisits a 2011 clarification under the CEA in which the CFTC stated that it lacked the statutory authority to pursue a separate enforcement action against an entity that retaliates against a whistleblower. While interpreting the same CEA section, the SEC had concluded the opposite, and adopted rules that protect claimants from retaliation. The new clarification under the proposed rules follows the SEC's interpretation.

Along with the new interpretation, the CFTC proposes a new rule that would prohibit enforcement against potential whistleblowers of confidentiality and predispute arbitration clauses in any pre-employment, employment, or post-employment agreement. Employers would also be prevented from threatening, harassing, or retaliating against individuals participating in the CFTC whistleblower program, even if those individuals do not qualify for an award.

Awards for related actions. The proposes rules would amend Part 165.11 of the CFTC Regulations to permit claimants who are eligible to receive an award in a covered action to also receive an award based on monetary sanctions collected by a final judgment in a related action. However, claimants would be precluded from "double dipping" by receiving an award granted by the CFTC if the claimant had been granted an award under the SEC's whistleblower program for the same action.

Similarly, the proposed rules would preclude a claimant from receiving an award under the CFTC's whistleblower program where the claimant had been denied an award under the SEC's whistleblower program for the related action.

Award eligibility. The proposed rules clarify that under the terms of CFTC Regulations Part 165.5, claimants may receive a monetary award in either a direct action, a related action, or both. The proposal also clarifies that under Part 165.5, a claimant may be eligible for an award by providing the CFTC with original information while not being the original source for such information.

Further, the proposal would extend the filing deadline for Form TCR (Tip, Complain or Referral) from 120 days to 180 days after previously providing the information to another authority or person.

The CFTC also provides notice in the proposed rules that it has the authority to waive the procedural rules under Part 165.7, which outlines the procedures for award applications and CFTC award determinations under extraordinary circumstances.

Records for award determinations. The CFTC proposes to include additional items in the record to support whistleblower awards claims. Such items may include information relating to the claimant's eligibility but would not include pre-decision or internal deliberative materials that are prepared to assistant the CFTC or the claims review staff in its decision making process.

Whistleblower identity information. The proposal would authorize the CFTC's Director of the Division of Enforcement to disclose whistleblower identity information as permitted by the CEA when the release of such information is deemed necessary and appropriate.

Review process. The CFTC has proposed to discontinue its Award Determination Panel and establish a claims review staff in its place to manage and review the award-determination process. Under the proposed rules, the claims review staff would issue a proposed final determination in all claims cases, subject to the CFTC Commissioner's review.

Under the proposed rules, if a claimant does not exhaust all administrative remedies, then the claimant would be prohibited from pursuing judicial review. Uncontested proposed awards would be treated as proposed final determinations. Any CFTC commissioner can review a proposed final determination within 30 days. If no review is made, then the proposed final determination would become a CFTC final order.

The proposed rules directly assign the administrative responsibilities of the whistleblower program to the Whistleblower Office (WBO), located within the CFTC's Division of Enforcement. Form WB-APP would be primarily reviewed by the WBO, including where the form is facially ineligible. The WBO would make assessments on the eligibility of claims and provide claimants the opportunity to provide additional information, correct deficiencies, or withdraw the claim prior to final denial.

Under the proposed amendments to Part 165.7, if the claimant does not correct deficiencies identified by the WBO (or withdraw the claim), the WBO would be required to notify the claims review staff of its proposal to deny the claim. The staff would then have the opportunity to review the proposed denial. If no review is requested, the proposed final disposition would become a final order of the CFTC. Similarly, if the claims review staff reviews the proposed denial, its ultimate determination would become a final order of the CFTC.

Under proposed Part 165.7(f), Form WB-APPs that are timely submitted in response to a Notice of Covered Actions or a final judgment in a related action would be reviewed by the claims review staff. The claims review staff may request additional information during the review process, including information for claims made pursuant to related actions. For related claims, the claims review staff may seek assistance and confirmation from other agencies involved in the related action. Following an initial review, the claims review staff would issue a preliminary determination on whether the claim should be granted or denied. If granted, the claims review staff would set out a proposed award percentage amount, which the claimant would have the opportunity to contest.

These proposed changes have been informed, in part, by the CFTC's experience since the inception of its whistleblower program, as well as by the experience of the SEC with its own similar whistleblower program.

For more information on whistleblower protections, see Practice Note, Whistleblower Protections Under Sarbanes-Oxley and the Dodd-Frank Act.

The CFTC is inviting written comments by mail, the CFTC website or through the federal eRulemaking Portal. All comments must be received on or before September 29, 2016.