August 1, 2024
On June 17, 2024, the U.S. Commodity Futures Trading Commission’s Division of Enforcement (CFTC) issued an order in an Enforcement action that simultaneously settled charges against Trafigura Trading LLC for several CFTC violations, including, significantly, not disclosing whistleblower carveout language in its employee agreements in violation of Regulation 165.19(b).
By not including this carveout language, which allows for voluntary communications about confidential matters between current and former employees and law enforcement and regulatory agencies, Trafigura impeded potential whistleblowers and other witnesses from coming forward about the company’s alleged illegal conduct.
Why is this Important?
This is the first time that the CFTC has charged a business entity for its failure to include whistleblower carveout language in its employment agreements, putting the market on notice that the CFTC is not only committed to protecting potential whistleblowers but it will not tolerate entities that impede or retaliate against potential whistleblowers and their communications with law enforcement and/or regulatory agencies.
What is Regulation 165.19(b)?
An integral part of the CFTC Commodity Exchange Act’s whistleblower provisions, Regulation 165.19(b) states: “No person may take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the Commodity Exchange Act (CEA), including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications.”
Enacted in 2017, Regulation 165.19(b) helped strengthen the anti-retaliation protections of the CFTC’s whistleblower program, which was created in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) Furthermore, this amendment gives the CFTC greater authority to bring actions against employers who interfered and/or retaliated in such communications.
Background on Trafigura Trading LLC
Trafigura is one of the world’s largest commodities traders, trading over 263 million metric tons of oil and oil products in fiscal year 2023. It is also a major participant in oil derivatives markets and other swaps markets. Registered in Singapore with trading operations in Houston, Texas, the CFTC claims that Trafigura obtained and traded on material, nonpublic information about a Mexican trading entity between 2014 and 2019. The CFTC further alleges that in February 2017, Trafigura manipulated the U.S. Gulf Coast high-sulfur fuel oil price assessment, a fuel benchmark published by S&P Global Platts, benefitting Trafigura’s futures and swaps positions, including derivatives traded on U.S. Commodity Futures Exchanges, including the New York Mercantile Exchange and the ICE Futures U.S. Inc. in violation of the CEA.
Trafigura’s Employment Agreements
According to a June 17, 2024 CFTC press release, between 2017 and 2020, Trafigura required its employees to sign employment agreements and requested that former employees sign separation agreements containing non-disclosure provisions prohibiting them from disclosing company information, with no exception for law enforcement agencies or regulators, such as the CFTC.
Because these employment agreements did not include language allowing employees and former employees to communicate with regulatory authorities about confidential company information, including company dealings that may be illegal, this not only violated Regulation 165.19(b), but led to confusion among certain current and former Trafigura employees and therefore impeded their direct and voluntary whistleblower communications with the CFTC.
Securities & Exchange Commission’s Rule 21F-17(a)
The CFTC’s public stand against an entity for allegedly failing to include whistleblower carveout language in employee contracts follows an example set by the Securities & Exchange Commission (SEC). As recently as February 2023, the SEC charged Activision Blizzard Inc. with similar whistleblower disclosure violations, resulting in an enforcement action and a $35 million whistleblower fine.
Similar to the CEA’s Regulation 165.19(b), the SEC’s Securities Exchange Act of 1934, Rule 21F-17(a) provides that, “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”
Whistleblower Protection & Confidentially
The CFTC Whistleblower Program and SEC Whistleblower Program are both committed to protecting the identity of whistleblowers and prohibiting retaliatory behavior. The integrity and success of these programs relies on the courage and trust of witnesses to come forward voluntarily and free of intimidation to report misconduct or fraud.
What if I witness misconduct or suspect fraud?
If you observe possible misconduct or fraud in violation of the CEA, it is critical that you inform the CFTC. The CFTC will often pay monetary awards to whistleblowers who voluntarily report violations of the CEA that leads to a successful enforcement action, as well as privacy, confidentiality, and anti-retaliation protections for whistleblowers.
How do I report misconduct or fraud to the CFTC?
If you suspect misconduct or fraud, contact an attorney, such as a member of Cohen Milstein’s Whistleblower practice, who can counsel you on the Whistleblower process and help you complete and submit the CFTC’s tip, complaint, and referral form (Form TCR).
Such consultations are confidential and free of charge.
What information is needed to report fraud or misconduct to the CFTC?
In addition to your personal observations and a completed Form TCR, the CFTC requires supporting information that is original and not in the public sphere.
What if I’m not a company insider?
You do not need to be a company “insider” (like an employee or trader) to witness or report possible fraud or misconduct. Other market participants or victims of fraud or misconduct who observe these actions committed by others may also qualify as whistleblowers.
Does the CFTC offer a whistleblower award for reporting fraud or misconduct?
Yes. If your information leads to a successful CFTC enforcement action resulting in more than $1 million in monetary sanctions, you will receive an award ranging from 10-30% of any monetary sanctions collected.
Where do I find more information about reporting fraud and becoming a whistleblower?
The CFTC’s Whistleblower Office provides comprehensive guidelines on reporting fraud and the whistleblower process.
You can also contact a member of Cohen Milstein’s Whistleblower practice for a confidential and free-of-charge consultation.
About the Author
Christina McGlosson, special counsel in Cohen Milstein’s Whistleblower practice, focuses exclusively on Dodd-Frank Whistleblower representation. She is the former acting director of the Whistleblower Office in the Division of Enforcement at the U.S. Commodity Futures Trading Commission. She was also a senior attorney in the SEC’s Division of Enforcement, where she assisted in drafting the SEC rules to implement the whistleblower provisions of Dodd-Frank.
Christina represents whistleblowers in the presentation and prosecution of fraud claims before the SEC, CFTC, FinCen, as part of the U.S. Treasury, the Department of Justice, and other government agencies.
Christina McGlosson, Special Counsel: Dodd-Frank Whistleblower Practice
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, NW
Washington, DC 20005
E: cmcglosson@cohenmilstein.com
T. 202-988-3970
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