CFTC's Annual Enforcement Results Include Notable and Novel Cases

By Katherine Cooper, Elizabeth Lan Davis, Harris L. Kay, Alexandra J. Marinzel, Robertson Park, Maggie Sklar, and William E. Walsh

11.02.22

The Commodity Futures Trading Commission ("CFTC") recently released its enforcement results for Fiscal Year 2022 ("FY 2022"). In addition to detailing the recovery of over $2.5 billion in restitution, disgorgement, and civil monetary penalties, the published results also highlight a number of notable enforcement actions and trends, including novel actions in the digital asset, energy benchmarks, swap data reporting, and messaging recordkeeping areas.

Digital Assets

The results demonstrate that the CFTC continues to focus on cryptocurrency, with 18 of the 82 enforcement actions filed in FY 2022 – over 20% – involving digital assets. The CFTC also filed its first action against a decentralized autonomous organization ("DAO") in FY 2022.

Of the 18 actions involving digital assets, the CFTC specifically highlighted the following actions as worthy of note:

Imposed a $250,000 penalty against bZeroX, LLC, and its founders for offering illegal, off-exchange digital asset trading, for numerous registration violations, and for failing to comply with the Bank Secrecy Act.
Charged bZeroX, LLC's successor, Ooki DAO, in a novel action and used unique theories to obtain service on the token holders for the same conduct. We provide additional insight on these enforcement actions here: CFTC Takes Aim at DAO Members in bZeroX Settlement.
Charged a major U.S. cryptocurrency spot exchange with making materially false or misleading statements and omissions to the CFTC in connection with a designated contract market's self-certification of a bitcoin futures product, demonstrating that those coming in to speak to DMO or the Commissioners and their senior counsels should seek advice and counsel regarding what information they wish to put before the CFTC.
Charged digital asset derivatives platform Digitex and a Florida resident with facilitating unlawful futures transactions, failing to register, and attempted manipulation of a native token.
Charged South African pool operator Mirror Trading International Proprietary Limited and its CEO with a $1.7 billion fraud action involving bitcoin. The action is the largest fraudulent scheme involving bitcoin to be charged by the CFTC to date.
Found that the cryptocurrency trading platform Bitfinex engaged in illegal, off-exchange retail commodity transactions in digital assets without registering as required.
Found that Tether Holdings Limited and others made untrue or misleading statements and omissions of material fact in connection with its U.S. dollar-tied stablecoin. Tether is required to pay a civil monetary penalty of $41 million in connection with the order.

Manipulation, Deceptive Conduct, and Spoofing

In the single "largest benchmark manipulation case to date" brought by the CFTC, the CFTC found that Glencore, an energy and commodities trading firm, manipulated or attempted to manipulate four U.S. based S&P Global Platts physical oil benchmarks and related futures and swaps over the course of at least 11 years. The CFTC also found that Glencore engaged in foreign corruption. The CFTC fined Glencore a total of $1.186 billion, including a civil monetary penalty of $865,630,784 and disgorgement of $320,715,066, both of which represent the highest amounts of any CFTC action. Although the CFTC does not have direct benchmark authority, entities should proactively evaluate their activities in this respect, because the CFTC has anti-manipulation authority over benchmarks.

The Fraud Section of the U.S. Department of Justice also announced parallel criminal actions against Glencore on the same day for foreign bribery and market manipulation conspiracies, resulting in an additional $1.1 billion in fines assessed to Glencore. Authorities in the United Kingdom and Brazil also reached resolutions with Glencore arising from the same underlying conduct. According to the CFTC, the parallel actions demonstrate the CFTC's continued emphasis on coordination with criminal authorities and both domestic and international regulatory partners. The Glencore case also emphasizes the CFTC's continued focus on foreign corruption following the historic $95 million enforcement action against Vitol Inc. for foreign corruption and other violations in 2020.

The Glencore action was by no means the only action regarding improper trading conduct in FY 2022. The CFTC also charged other defendants with spoofing soybean futures, gold and silver futures, CME Natural Gas and Reformulated Blendstock for Oxygenate Blending Gasoline futures, and Treasury Futures.

Recordkeeping/Data and Text Message Sweep

In an industrywide sweep, the CFTC found that the swap dealer and futures commission merchant ("FCM") affiliates of 12 financial institutions committed recordkeeping and supervision violations by failing to prevent its employees, including senior employees, from using unapproved communication methods like personal text messages, WhatsApp, and Signal. The 12 financial institutions involved in the sweep are a "who's who" of the financial industry. The CFTC sweep netted the U.S. Treasury a total of $796 million in civil monetary penalties.

Swaps Reporting and Swap Dealer Business Conduct

FY 2022 saw an expansion of the CFTC's capabilities and willingness to bring actions in the swap space, as well as its aggressiveness in connection with doing so. The CFTC charged a London-based provisionally registered swap dealer with failing to comply with certain swap dealer requirements to report accurate swaps data to a swaps data repository, as well as failing to disclose a conflict of interest to swaps counterparties, failing to disclose mid-market marks to counterparties, and related supervisory failures. The company agreed to a civil monetary penalty of $3.25 million and a cease-and-desist order.

Similarly, the CFTC charged a French bank with swap reporting and daily mark disclosure violations, ordering it to pay a $6 million civil monetary penalty and submit to other remedies including the creation of a written report regarding its compliance with the Commodity Exchange Act ("CEA") and CFTC regulations.

Other CFTC Matters

The CFTC continues to bring actions under its authority under the CEA, as amended by the Dodd-Frank Act. The FY 2022 results highlight other enforcement actions for violations by registered entities, misappropriation of material non-public information, fraud, registration, reporting, wash trades, and position limit violations.

Additionally, the CFTC emphasized the growth and importance of its Whistleblower Program, with sanctions from whistleblower-related enforcement actions exceeding $3 billion for FY 2022. FY 2022 also saw the biggest ever whistleblower award granted pursuant to the Dodd-Frank Act, with approximately $200 million going to a single whistleblower.