CFTC Is Likely to Follow the SEC’s Playbook for Whistleblowers

In this article for Bloomberg Law, partner Lee Mayberry and associate Nicole Cleminshaw discuss the Commodities Futures and Trading Commission's (CFTC) rules on whistleblowers and how they align with the Securities and Exchange Commission’s (SEC) model.

The Commodities Futures and Trading Commission is following in the Securities and Exchange Commission’s footsteps by examining potential impediments to would-be whistleblowers. While the CFTC has yet to bring any enforcement actions under its anti-impediment rule, the rule text is nearly identical to the SEC’s.

Recent SEC enforcement actions could provide a blueprint for the type of conduct the CFTC will consider violative. Companies seeking to enhance whistleblower protection language should consider some common pitfalls.

The SEC’s whistleblower program has experienced profound growth and is repeatedly cited as crucial to its mission of protecting financial markets. In fiscal year 2023 alone, the office received 18,354 tips, more than double that of fiscal year 2022.

Monetary penalties associated with impediment enforcement actions have similarly soared, with two recent actions resulting in penalties of $18 million and $10 million respectively. In comparison, prior to 2023, no standalone impediment enforcement action resulted in a monetary penalty over $1 million.

The success of the program inspired other regulators to reassess their whistleblower priorities. In March, the Department of Justice referenced both the SEC and CFTC whistleblower programs as potential models for its forthcoming whistleblower pilot program.

Standardize Language

It’s imperative to have consistent language within and across relevant documents, as the SEC views conflicting language as creating ambiguity that could ultimately chill whistleblowing. For example, in one recent enforcement action, the company issued a firmwide communication expressly recognizing whistleblower rights and stating that no company agreement or policy should be interpreted otherwise.

However, the company also continued using certain documents containing broad confidentiality provisions, which the SEC found to be overbroad and an impediment to whistleblowing despite the firmwide communication recognizing whistleblower rights.

When carveouts or savings clauses are used to address whistleblower rights, they shouldn’t be followed by potentially conflicting language that could call into question the import of the carve out. In a 2023 enforcement action, the SEC found that a generalized savings clause indicating that nothing in the agreement prevented communications with regulators was insufficient to overcome another clause in the same document that required employees to notify the company of such communications so the company could protect its information.

Look Beyond the US

Companies should consider reviewing documents or practices that may restrict the ability of individuals located abroad to report suspected violations of US securities laws. The SEC recently boasted that its whistleblower program finally became “fundamentally international in character,” with the most non-domestic reports arriving from Canada, the UK, Australia, Germany, and India. The SEC praised the remedial measures of a company that reviewed template agreements used in more than 60 countries and published in over a dozen languages.

Broad Interpretation

The SEC has made clear that its anti-impediment rule should be interpreted broadly and therefore is “not limited to protecting individuals in an employee-employer relationship.” Further punctuating this point, the commission brought enforcement actions alleging whistleblower impediments in settlement agreements with clients, investors, and customers.

The scope of documents impacted can be staggering. With this arguably overbroad rule interpretation, companies should carefully consider whether other documents contain general or specific restrictions on use of information that could interfere with an individual’s “unfettered ability” to provide information to further SEC investigations, even if such documents aren’t yet targeted in SEC enforcement actions.

The SEC’s unquestionably aggressive interpretation of whistleblower impediments has developed through years of growing enforcement actions, despite criticism from the private sector that formally issued guidance would be more efficient. Gurbir Grewal, director of the SEC’s Division of Enforcement, urged companies to take “careful notice” of recent whistleblower enforcement actions.

These broadly target actions that “undermine” the purpose of Rule 21F-17, which the SEC maintains is to “encourag[e] individuals to report to the Commission.” Both the SEC and CFTC rules only govern impediments to the ability of individuals to communicate with the commissions.

The enforcement actions, taken together, provide contours for several categories of conduct that the SEC views as impeding whistleblowers, including:

• Restricting an individual’s ability to voluntarily provide information to the commission
• Requiring an individual to notify a company when disclosing its confidential information
• Restricting an individual’s ability to collect whistleblower awards from the SEC Requiring individuals to disclose, or disclaim the existence of, any prior reports made to the commission, particularly where representation is required before receipt of monetary benefits, such as severance

Most of these enforcement actions involve language contained in employee handbooks or employment, severance, and settlement agreements. Companies should review such documents to ensure they’re aligned with the SEC’s expectations.

Given the ever-expanding SEC interpretation of impediments—along with the CFTC’s entry into the whistleblower protection enforcement space and the DOJ’s eventual foray—companies should also continue to monitor developing enforcement actions to ensure that they’re staying abreast of sometimes surprising regulatory expectations.