CFTC Charges Trading Company With Market Manipulation and Whistleblower Protection Violations

On June 17, 2024, the CFTC's Division of Enforcement announced that it had reached a settlement with Trafigura Trading LLC ("Trafigura") over allegations that the firm manipulated oil derivatives prices while discouraging employees from reporting potentially unlawful activity. In the settlement order, the CFTC alleged Trafigura misappropriated material non-public information, manipulated the benchmark price of U.S. Gulf Coast high-sulfur fuel oil to benefit its futures and swaps positions, and "defrauded its counterparties, harmed other market participants, and undermined the integrity of U.S. and global oil markets," while allegedly requiring employees to sign contracts that failed to provide carve-outs for whistleblowers to freely communicate with federal investigators and regulators about illegal conduct.

This is the first time that the CFTC has taken a public stance against the alleged failure of a company to include a whistleblower carve-out language in employee nondisclosure agreements following the example set by the SEC in previous enforcement actions, such as In the Matter of Activision Blizzard Inc. Brian Young, the director of the CFTC's whistleblower office, stated, "This groundbreaking action demonstrates the CFTC's commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate attempts to silence potential witnesses." The order is consistent with recent trends in the employment context prohibiting or limiting nondisclosure agreements that do not carve out disclosures related to harassment, discrimination, or protected and concerted activity among employees. Similarly, the CFTC's position on this issue would create potential liability for firms that fail to include relevant carve-outs in other documents such as independent contractor agreements, separation agreements, employee handbooks, and compliance manuals.

While CFTC Commissioners Summer Mersinger and Caroline Pham supported the settlement of the manipulation charges, they both disagreed with the decision to charge Trafigura with the whistleblower protection violations. In her statement, Commissioner Mersinger commented that the CFTC was engaging in regulation by enforcement by altering the CFTC's interpretation of Regulation 165.19(b)[1], and that the charges against Trafigura were inconsistent with the regulation's text and prior commission statements regarding the rule's intent. Furthermore, Commissioner Mersinger stated, "if the Commission wants to implement a policy that an NDA can constitute an action that impedes employees from communicating with CFTC staff, and that companies using such agreements have an affirmative duty to inform employees that they may make voluntary disclosures to the Commission, it should do so by amending its rule." Similarly, Commissioner Pham also noted that the whistleblower charges presents "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."

Trafigura settled the case without admitting or denying the allegations but agreed to pay a $55 million civil penalty and to modify the nondisclosure provisions in its employment, termination, and severance agreements to include language making it clear that nothing in those provisions should be understood to limit or prevent communications with governmental authorities about potential violations of law.

The Department of Justice's recent "pilot" adoption of its own Whistleblower Program only elevates the importance of this settlement within the broader universe of relevant enforcement and criminal investigative authorities. In March 2024, DOJ settled charges with Trafigura over allegations the firm violated the anti-bribery provisions of the FCPA, demonstrating another example of the CFTC coordinating with DOJ and the CFTC's entry as a new player in the FCPA space.

It has been widely reported that the CFTC has been asking firms about their nondisclosure agreements, so this enforcement action may signal that the commission intends to pursue this issue on a widespread basis. Reach out to DWT's commodities and employment lawyers if you have any questions or if we can help you with your compliance program.