CFTC Taking Aim At Restrictive NDAs Which Impede Whistleblowing

Kohn, Kohn & Colapinto, LLP


Kohn, Kohn & Colapinto (KKC) is a qui tam and whistleblower rights law firm representing whistleblowers who report securities and commodities frauds, tax evasion, and violations of the Foreign Corrupt Practices and False Claims Acts. KKC won the largest-ever individual whistleblower award ($104 million) paid to UBS bank whistleblower Bradley Birkenfeld.
Reporting from Bloomberg details recent requests sent to major banks by the U.S. Commodity Futures Trading Commission (CFTC) seeking non-disclosure agreements...
United States Finance and Banking
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Reporting from Bloomberg details recent requests sent to major banks by the U.S. Commodity Futures Trading Commission (CFTC) seeking non-disclosure agreements used in swaps and clearing businesses in order to determine whether or not they violate CFTC rules prohibiting companies from impeding the ability of individuals to blow the whistle to the agency.

CFTC Rule 165.19 states that "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, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications."

According to Bloomberg, the CFTC "has reached out to a number of banks, including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc." "has requested that the banks hand over employment and customer agreements in their swaps and clearing businesses" and "is looking into whether the contracts include language that impede whistleblowers or fail to make clear that wrongdoing can be reported to the regulator."

Strong enforcement of Rule 165.19 is key to the efficacy of the CFTC Whistleblower Program, which offers monetary awards and anti-retaliation protections to individuals who voluntarily report original information about violations of commodities laws. Restrictive NDAs (even if they are unenforceable) silence would-be-whistleblowers, undermining the program.

The CFTC Whistleblower Program plays a vital role in the agency's enforcement efforts. Last year, the CFTC reported that "roughly 30 percent of all CFTC enforcement investigations stem from whistleblowers, and information from whistleblowers assisted in enforcement actions totaling more than $3 billion."

In February, the CFTC announced that Brian Young had been named as the new director of the CFTC Whistleblower Office. "Leads generated from insiders are critically important to any financial enforcement program," he said. "The tremendous accomplishments of the CFTC's Whistleblower Program confirm this view."

In recent months, the Securities and Exchange Commission (SEC) has stepped up its enforcement of a similar rule. In January, J.P Morgan agreed to pay the SEC $18 million to settle charges that the firm utilized confidential agreements which impeded clients from blowing the whistle. This was the largest penalty ever levied for a violation of SEC Rule 21F-17(a).

"Whether it's in your employment contracts, settlement agreements or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement in a press release announcing the J.P. Morgan settlement.

In regards to the recent requests by the CFTC, Bloomberg reports that "the companies haven't been accused of wrongdoing, and the requests could result in no action."

Originally published April 26th, 2024.

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