CFTC Announces First-Ever Enforcement Action for Impeding Whistleblowers

June 24, 2024

The U.S. Commodity Futures Trading Commission ("CFTC") recently announced a first-of-its-kind enforcement action under CFTC Rule 165.19(b), for allegedly impeding whistleblower reporting by requiring employees to enter into confidentiality agreements that did not explicitly confirm employees' freedom to communicate with law enforcement or regulators. This action comes in the wake of recent heightened enforcement activity by the U.S. Securities and Exchange Commission ("SEC") to enforce a similar whistleblower rule, SEC Rule 21F-17(a).

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On June 17, 2024, the CFTC announced a settlement with Trafigura Trading LLC ("Trafigura"), a commodities trading firm. The CFTC's Order brought and settled charges for three distinct courses of conduct. In addition to charges under Rule 180.1(a)(1) and (3) relating to (i) alleged misappropriation of material non-public information from another market participant, and (ii) manipulation of a benchmark price for fuel oil, the CFTC's Order found that (iii) by requiring employees to sign employment agreements and separation agreements with broad non-disclosure provisions, Trafigura impeded voluntary communications with the CFTC and violated CFTC Rule 165.19(b).

Specifically, in support of the Rule 165.19(b) charge, the CFTC alleged that between 2017 and 2020, "Trafigura required its employees to sign employment agreements, and requested that former employees sign separation agreements, with broad non-disclosure provisions that prohibited the sharing of Trafigura's confidential information with third parties." These agreements allegedly "did not contain carve-out language expressly permitting communications with law enforcement or regulators like the Commission." As a result, the CFTC concluded that the agreements "purported to prohibit individuals from voluntarily and directly communicating directly with Commission staff about possible violations" of the Commodity Exchange Act ("CEA") and associated regulations, in violation of CFTC Rule 165.19(b).

The settlement is the first time the CFTC has enforced Rule 165.19(b), which prohibits any "person" from taking "any action to impede an individual from communicating directly with the [CFTC]'s staff about a possible violation of the [CEA], including by enforcing, or threatening to enforce, a confidentiality agreement or pre-dispute arbitration agreement with respect to such communications." That rule closely tracks the language of SEC Rule 21F-17(a), which similarly prohibits taking "any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement." Unlike the CFTC, the SEC has brought a number of enforcement actions against companies for allegedly impeding whistleblower reporting. Although the text of the CFTC and SEC rules is similar, the rules were adopted under different statutory provisions and agency rulemaking processes.

The CFTC amended Rule 165.19(b) in 2017 to make it "consistent with the SEC's whistleblower rules." In doing so, the CFTC purported to revoke its prior position that the associated provision of the CEA under which Rule 165 was enacted created only a private right of action for whistleblower retaliation such that the CFTC "does not have the statutory authority to conclude that any entity that retaliates against a whistleblower commits a separate and independent violation of the CEA."

The Trafigura settlement order does not:

• Identify the exact employment language at issue;
• Specify the number of employees or agreements at issue; or
• State whether there is any evidence that any of the agreements at issue impeded any whistleblowing.

To resolve the whistleblower protection charge as well as the other charges addressed in the Order, Trafigura agreed to a $55 million civil monetary penalty. Trafigura also agreed to take action to "modify non-disclosure provisions in its employment, termination, and severance agreements ('Agreements') to include language making clear that no term in any such Agreement should be understood to limit or prevent the filing of a complaint with; or voluntary, lawful communication with; or disclosure of information to any federal, state, or local governmental regulatory or law enforcement agency."

Two Commissioners issued separate statements raising concerns regarding the whistleblower protection charges. Both statements expressed concern with the breadth of the CFTC's assertion of enforcement authority over employment agreement language, as well as the CFTC's application of Rule 165.19(b) in a context where the CFTC has not provided any industry guidance.

Commissioner Summer K. Mersinger stated that the whistleblower violation "is inconsistent with the regulation's text and prior Commission statements regarding the regulation's intent," and the CFTC "has never required before or even identified previously" a requirement to include carve-out language in employment agreements. She further noted that Rule 165.19(b) prohibits "action[s]" that impede whistleblowing and disagreed with the majority's view that "an employment agreement, in and of itself, can rise to the level of an 'action' that impedes an individual from communicating directly with the Commission's staff."

Commissioner Caroline Pham also released a statement expressing her view that "the Commission inappropriately tacks on an additional [whistleblower] charge to fly under the radar with a wholly new interpretation of a 7-year-old rule that has never been the subject of a staff advisory or other notice to the public since it was issued." Commissioner Pham further stated that she "made numerous requests for examples of the agreements that the CFTC found violative," and "received only one job offer letter and one separation agreement." Of those two agreements, "[o]nly the job offer letter had language requiring written pre-approval from the firm regarding confidential information . . . but it also had two savings clauses that voided any language that may violate any law or regulation whether current or prospective."

Given the recent heightened SEC activity in the whistleblower impediment space, as well as the new CFTC Trafigura settlement, employers should consider reviewing their various agreements and policies to ensure they do not contain language that may be deemed to violate whistleblower impediment rules, and consider including language that expressly protects whistleblower rights in those agreements and policies.