The Commodities Futures and Trading Commission (CFTC) appears to be following the lead of the Securities and Trade Commission (SEC) in examining potential obstacles towards their respective whistleblowers. While no enforcement actions have been initiated by the CFTC under their anti-impediment rule, it is expected to follow the SEC’s playbook given that the rule text of both regulatory bodies is closely identical.
SEC’s enforcement actions in the recent past can provide invaluable insights into the conduct that the CFTC might find in violation of its rules. Accordingly, companies seeking to bolster their whistleblower protection language should take note of some common missteps.
The whistleblower program of the SEC has seen tremendous growth and is often applauded for its role in safeguarding financial markets. During the fiscal year 2023, the office received more than 18,000 tips, signaling a two-fold increase from the preceding fiscal year. Monetary penalties associated with deterrent enforcement actions have also witnessed a surge. For instance, two recent enforcement actions culminated in penalties of $18 million and $10 million respectively.
standardize the language across all relevant documents is considered imperative as the SEC treats conflicting language as creating ambiguity, which could eventually discourage whistleblowing. Similarly, when carveouts or savings clauses are used to clarify whistleblower rights, they should not be followed by potentially contradictory language that could impugn the importance of the carveout.
While further broadening the scope of their whistleblower programs companies should review documents or practices that could limit the ability of individuals residing outside the U.S. to report suspected infractions of U.S. securities laws. It is of note here that non-domestic reports have been predominantly originating from Canada, the UK, Australia, Germany, and India.
The SEC clarifies that its anti-impediment rule should be construed broadly and is not only restricted to protect individuals in an employee-employer relationship. As such, the commission brought enforcement actions alleging whistleblower impediments in settlement agreements with clients, investors, and customers.
With the continuing expansion of the SEC’s interpretation of deterrents, along with the CFTC entering the whistleblower protection enforcement space, companies need to stay vigilant of developing enforcement actions to ensure they comply with sometimes surprising regulatory expectations.