CFTC Releases Its Enforcement Results for FY 2024 Showing an All-Time High for Monetary Relief

On December 4, 2024, the CFTC's Division of Enforcement ("Division") released its enforcement results for Fiscal Year 2024. The results reflected an all-time high for monetary relief, mainly from its resolution of off-channel communication cases and the FTX action. However, the total number of new enforcement actions filed in FY 2024 was notably lower than prior years, reflecting that the Division's focus this past fiscal year was seemingly more concentrated on bringing cases involving novel interpretations of its authority under the Commodity Exchange Act and CFTC Regulations. Given the stated priorities of the incoming Administration, next year's results will likely resemble the results announced during prior administrations with a return to a higher number of new enforcement cases filed focused on fraud. Enforcement may also continue to increase in the crypto space especially if the CFTC's jurisdictional authority is expanded to include spot crypto markets, for which entities active in or seeking to enter that space should take heed.

CFTC FY 2024 Enforcement Results

In FY 2024, the Division obtained record monetary relief totaling over $17.1 billion, comprised of $2.6 billion in civil monetary penalties and $14.5 billion in restitution and disgorgement. This total largely comes from the Division's resolution of FTX and off-channel communications cases. A significant portion of the Division's FY 2024 monetary relief came from the resolution of FTX alone, which led to $8.7 billion in restitution and $4 billion in disgorgement. The $12.7 billion judgment is the largest recovery in CFTC history. Similarly eye-opening were the staggering civil monetary penalties assessed against financial institutions for their use of off-channel communications. Since December 2021, the CFTC has imposed over $1.23 billion in civil monetary penalties on 28 financial institutions for their use of unapproved methods of communication in violation of CFTC recordkeeping and supervision requirements. In light of the dissents issued by Commissioners Pham and Mersinger to these cases, the winds indicate that enforcement actions and the penalties resulting from these off-channel communications cases may potentially abate.[1]

The Division's FY 2024 results noted that the Division brought 58 new enforcement actions. This number is significantly lower as compared to prior years, with markedly fewer cases brought in the fraud category—only 11 cases. By contrast, in FY 2023, the Division brought 96 new enforcement actions of which 59 were fraud cases, and in FY 2022, 82 new enforcement actions were filed, of which 31 were fraud matters.[2] The Division did not report its results in FY 2021 but had an all-time high of 113 new enforcement matters in FY 2020, of which 56 were for retail fraud.[3] The number of cases for the other categories of cases brought by the Division in FY 2024 encompassing manipulative and deceptive conduct, risk management and compliance, misappropriation of material nonpublic information, and trade practice violations were consistent with prior years, and it is likely that the numbers for these types of cases will be similar looking forward as those types of cases are consistent mainstays of the Division's enforcement program.

In contrast to the decrease in the total number of new enforcement cases brought in FY 2024, the Division did bring a number of cases that were the first of their kind, involving novel theories of interpretation of the Commodity Exchange Act and CFTC Regulations. Those areas included using the CFTC's administrative proceedings to bring registration charges against unregistered futures commission merchants, actions charging swap execution facilities with core principle violations typically a subject of examinations as opposed to enforcement actions, new interpretations of the CFTC's whistleblower rules in Regulation 165.19(b) regarding non-disclosure provisions in employment agreements, and use of the CFTC's extraterritorial statutory authority in Section 4 of the Commodity Exchange Act to require a new futures commission merchant regime for foreign transactions.[4] The dissents of Commissioners Pham and Mersinger again portend that cases involving novel interpretations of CFTC authority without providing parties sufficient notice beforehand will not be an enforcement priority going forward. As such, a return to strict compliance with the language of the statutes themselves may be forthcoming.

The Division's FY 2024 enforcement results also mentioned the implementation of its enforcement advisory regarding penalties, monitors and consultants, and admissions,[5] which was a stark departure from prior enforcement advisories encouraging self-reporting and cooperation. Dissenting statements this past year indicate that a return to the carrot of the "carrot and stick" approach may be forthcoming.[6]

Considerations Looking Forward

All signs point to the Division's enforcement efforts continuing to be robust. Indeed, during former CFTC Chair Tarbert's tenure, the Division set a record for the most cases brought in a fiscal year (113). However, the Division's focus likely will return to the CFTC's core mission of protecting market integrity, as opposed to filing cases pursuing novel theories.

It is probable that the number of fraud cases brought by the Division will return to levels under prior administrations. Because potential criminal liability is viewed as the strongest deterrent measure, taken together with potential reduced agency funding, the Division's relationship with its counterparts at the Department of Justice and state regulators will likely be strong in this next Administration. To wit, the Division's results in FY 2020 during Chair Tarbert's term specifically noted that 16 actions were filed in parallel with federal criminal authorities.

With the incoming Administration's stated priorities in the crypto space, enforcement actions involving digital commodities could increase. The Division touted its reputation "as a premier enforcement agency in the digital asset space" in its FY 2024 results, and nearly half of all the Division's enforcement actions in FY 2023 involved conduct related to digital asset commodities.[7] Crypto will likely become a recognized asset class for traditional financial institutions which previously avoided crypto due to the uncertain regulatory environment. Prior bipartisan legislative efforts in the crypto space leaned heavily toward providing the CFTC with the authority to regulate spot digital commodity transactions.[8] While those in the crypto and DeFi space await the adoption of legislation and rulemaking to supplant the current "regulation by enforcement" regime, firms expanding into the crypto sphere should proactively implement compliance efforts now. Firms should exercise thorough due diligence in examining digital commodities to be listed and traded, addressing potential conflicts of interests, as well as determining whether registration with the CFTC may be necessary. Compliance departments should ensure that efforts are extended to include the crypto markets to surveil for wash trading, spoofing, and potential manipulation, to implement robust AML and KYC procedures in connection with digital commodities, and to ensure that recordkeeping efforts include information and communications relating to the trading of digital commodities.

Ultimately, much of the direction of the Division going forward will turn on who will be tapped to chair the CFTC and whether the practice of naming former federal prosecutors from the U.S. Attorney's Office for the Southern District of New York to lead the Division will continue. The dissents of Commissioners Pham and Mersinger in the Division's matters this past fiscal year offered substantial criticism of the Division's enforcement practices and highlighted concerns about fairness, transparency, and regulatory clarity.[9] How these stated concerns with the Division's enforcement priorities match with the new chair of the CFTC and the designated director of Enforcement will go a long way to help predict the direction of the CFTC under the new Administration.