December.22.2020
The CFTC’s Division of Enforcement (the “Division”) released its Annual Report on December 1, 2020, which provides insights into the Division’s priorities in both the prior and coming years. In the Report, the Division highlighted its successes in fiscal year 2020 and indicated that in the coming year it will continue to focus its enforcement efforts on its four priorities: (1) preserving market integrity; (2) protecting customers; (3) promoting individual accountability; and (4) coordinating with other regulators and criminal authorities on parallel matters.
The Division brought 113 enforcement actions in 2020—the most enforcement actions in the CFTC’s history. Sixteen of those actions involved manipulation, the CFTC’s enforcement “bread and butter” violation, including cases involving spoofing, a frequent subject of recent enforcement actions. One of the spoofing actions resulted in a joint settlement (with the DOJ and SEC) including monetary relief of $920 million in restitution, disgorgement and penalties—the highest in the Commission’s history. Half of the enforcement actions related to smaller retail fraud activity as opposed to cases against significant institutions. Seven of these retail fraud matters involved digital assets—an area in which the Division has indicated it will continue to aggressively pursue misconduct. The Division also highlighted the actions the Commission brought in 2020 related to the failures of entities to implement anti-money laundering procedures. In addition, many of the cases in this fiscal year considered the adequacy of an entity’s compliance program to detect and prevent misconduct.
While the overall number of cases is significant, it does not necessarily represent a dramatic increase in the size of the agency’s enforcement program. Twenty-four of the cases were derived from two sweeps—respectively, for falsely claiming CFTC Registration or National Futures Association Membership, and the failure to maintain membership with the NFA.
In the Report, the Division also highlighted its cooperation with other regulators and the Department of Justice. Specifically, in fiscal year 2020, the Commission filed 16 actions in parallel with federal criminal authorities and jointly filed an enforcement action with 30 state regulators. Further, the Division prosecuted a docket of over 140 pending litigations in 2020, demonstrating its willingness to try the cases it brings rather than accept what it might view as inadequate settlements.
Finally, the Division discussed guidance it issued this year in an effort to provide greater transparency: (1) Civil Monetary Penalty Guidance (which is the first such publicly issued guidance by the Division since the Commission published its penalty guidelines in 1994) and (2) Guidance on Evaluating Compliance Programs in Connection with Enforcement Actions (which is the first guidance of its kind issued by the Division).
The Division is committed to detecting, investigating and prosecuting misconduct in the commodities and derivatives markets to preserve market integrity and protect customers. To achieve its goals, the Division expects to continue its trend of working with other enforcement and regulatory agencies both domestic and international, including the Department of Justice. In addition, the Division highlighted the Commission’s market surveillance program that utilizes data analytics to identify trading patterns and positions that warrant further investigation. We anticipate that, going forward, significant investigations related to trading or positions will be driven in large part by this market surveillance program. We can also expect to see a continued focus on emerging issues highlighted in the Annual Report, including spoofing and other disruptive trading practices, digital assets, and AML compliance. The Division also expects to grow its whistleblower program. Notably, between 30-40% of the Division’s current ongoing investigations involve a whistleblower component.