CFTC Whistleblower Program at Risk Without Lawmakers’ Help

A stopgap measure that kept a key US financial regulator’s whistleblower office afloat during a funding crisis is set to expire unless lawmakers revive it, putting the cash-for-tips program in jeopardy.

The Commodity Futures Trading Commission, under a program established by Congress after the 2008 financial crisis, offers awards to whistleblowers whose tips lead to successful enforcement actions. The awards come from a revolving fund capped at $100 million that also pays for the CFTC’s whistleblower office and its staff.

Lawmakers are weighing how to keep the office open if the fund is depleted. Also up for debate is raising the fund’s cap to $300 million, putting it in line with the Securities and Exchange Commission.

The stakes are high for the CFTC, the top regulator of derivatives trading. Without action, there’s a risk that awards given to tipsters will overwhelm the program’s funding. The CFTC has paid out nearly $400 million since issuing the first award in 2014.

“Ultimately the payouts continue to grow and, if they do, it’s going to put the office in jeopardy from a staffing and a resource perspective,” CFTC Chair Rostin Behnam said during a Senate Agriculture Committee hearing this month.

Defunding Risk

Whistleblowers are eligible to receive 10% to 30% of the fines collected under the CFTC’s program, which was established by the 2010 Dodd-Frank Act to encourage insiders to report financial wrongdoing.

The CFTC’s whistleblower fund, which is supported by fines paid to the agency, can be replenished only when the balance falls below $100 million. Otherwise, sanctions collected by the agency are sent to the US Treasury.

The program was threatened in 2021, when the CFTC awarded almost $200 million to a whistleblower who provided the agency with evidence that benchmark interest rates were being manipulated. The scandal resulted in Deutsche Bank AG and other banks paying billions of dollars in fines.

The award wiped out the CFTC’s whistleblower fund, which ended fiscal 2021 more than $90 million in the red, according to an agency report. There were concerns staff would be furloughed and that the office would have to close until the fund could be replenished.

Congress stepped in that year to pass a measure (Public Law 117-25) creating a separate, $10 million fund that the CFTC can use to pay for the office’s operations when the main pot is depleted. The separate account is set to expire Oct. 1, unless lawmakers extend the deadline or make broader funding changes to the whistleblower program.

“That puts the office and the program again at risk of being defunded,” Christopher Ehrman, an attorney at Phillips & Cohen LLP, said.

That would be devastating for the office, said Ehrman, who led the unit for a decade before leaving in 2023. It could take months to collect enough fines to restart the office, and there’s a risk staff would find new jobs in the meantime.

“You don’t want to be constantly restarting the program,” Ehrman said. “It’s like a phoenix from its ashes but without the preexisting knowledge of the previous phoenix.”

Pipeline of Awards

Sen. Chuck Grassley (R-Iowa), who has sponsored several whistleblower award laws, introduced bipartisan legislation last year (S. 2500) that would make permanent the separate $10 million account supporting the CFTC whistleblower office. It would also raise the cap on the main whistleblower fund to $300 million from $100 million.

Grassley said during the hearing this month that the CFTC’s whistleblower program was at risk of being a victim of its own success.

“It is a needed first step,” Stephen Kohn, a founding partner of the whistleblower law firm Kohn, Kohn & Colapinto LLP, said of the legislation. “Without an adequate fund, other provisions of the law will be undermined.”

Before Dodd-Frank expanded the powers of the CFTC, it was seen as a small, sleepy agency. At the time, the prospect of the agency issuing a nearly $200 million whistleblower award—then a record amount—seemed unlikely.

“No one thought that we would be awarding whistleblowers anything close to that amount,” said attorney Christina McGlosson, former acting director of the CFTC’s whistleblower office who joined Cohen Milstein Sellers & Toll PLLC in April.

The CFTC’s office has awarded more than $47 million to whistleblowers since September, including an $18 million award in October, according to the agency. More awards are expected.

More than 30% of the CFTC’s enforcement investigations stem from whistleblowers, according to the National Whistleblower Center. The number of tips the office receives more than tripled from fiscal 2019 to 2023, according to agency data.

“There is a pipeline of awards and $100 million is not going to be sufficient,” McGlosson said.