Civil Monetary Penalty Guidance
On May 28, 2020 James McDonald, Director of Enforcement at the Commodity Futures Trading Commission (CFTC) gave a speech at the Futures Industry Association addressing the issues of penalties and penalty guidance, following up on a memo to staff (see here). This marked the first time in 25 years the CFTC has addressed this issue. What has changed? Since the passage of Dodd-Frank over ten years ago, that vastly increased the CFTC jurisdiction the CFTC has obtained $13.6 billion in monetary relief. Transparency into how fines are determined is necessary.
McDonald stated. “…the penalty guidance sets out the principles and factors that will guide staff action. This has the added benefit of yielding a document that is short enough that the people affected—business leaders, compliance professionals and market participants—should be able to easily read it, understand it, and implement any lessons learned.”
Generally, penalties may be determined on a per violation basis or up to triple the monetary gain to the Respondent, whichever is greater. Factors Enforcement takes into consideration in determination of monetary relief are:
- The gravity of the violation –
- Nature and scope of the violations.
- Whether the conduct was intentional or willful; and
- Nature and scope of any consequences flowing from the violations.
- Mitigating and Aggravating Circumstances –
- Post-violation conduct, including
- Mitigating conduct, such as attempts to cure, return of victim funds, or efforts to improve a compliance program; and
- aggravating conduct, such as concealment or obstruction of an ongoing investigation.
- Self-reporting and the extent of cooperation and remediation.
- Timeliness of remediation.
- Existence and effectiveness of the company’s pre-existing compliance program.
- Prior misconduct.
- Responsibility of management; and
- Nature of any disciplinary action taken by the company with respect to the individuals engaged in misconduct.
- Post-violation conduct, including
- Other Considerations –
- The total mix of remedies and monetary relief to be imposed on the Respondent in the recommended Commission enforcement action, in addition to the remedies and relief to be imposed in parallel cases involving criminal authorities (including incarceration), other regulatory entities, or self-regulatory organizations;
- Monetary and non-monetary relief in analogous cases; and
- Conservation of Commission resources i.e. timely settlement.
As I have written before the march toward holding individuals accountable for bad acts of corporate entities continues. The reminder from the CFTC specifically alludes to “remedies and relief to be imposed in parallel cases involving criminal authorities (including incarceration)”. There are several cases currently before the CFTC that clearly highlight the “gravity” prong of the factors considered by the CFTC Enforcement in seeking monetary relief. It should come as no surprise, when the time comes and when working with the Department of Justice individuals at the center of the controversy will be looking at criminal charges in addition to civil and monetary penalties.
McDonald stated, “we’ve imposed substantial penalties, enhanced our evaluation of compliance programs, strengthened remediation requirements, and ramped up our parallel activity with the Department of Justice.”
The stakes in the trading and marketing arena are going up. McDonald, a former U.S. Attorney in the Southern District with a background in criminal prosecution is more closely aligning with efforts of the Department of Justice. When you look at the 2019 “Advisory on Self Reporting and Cooperation for CEA Violations Involving Foreign Corrupt Practices” issued by CFTC Enforcement and compare with the most current guidance the march toward holding individuals accountable moves forward. The big difference, in my view is severity. Whereas the 2019 advisory about self-reporting and FCPA implications notes, “the Division will seek all available remedies—including, where appropriate, substantial civil monetary penalties—with respect to companies or individuals implicated in the misconduct that were not involved in submitting the voluntary disclosure” this advisory specifically mentions, “in addition to the remedies and relief to be imposed in parallel cases involving criminal authorities (including incarceration).” The differences are stark and ominous.
Click here to access the CFTC Enforcement manual.