CFTC’s $200M Whistleblower Award

Here’s news that will leave whistleblowers speechless: the Commodities and Futures Trading Commission just gave out the largest whistleblower award in U.S. history, a $200 million windfall reportedly going to a former Deutsche Bank executive who provided crucial help in unraveling the LIBOR rate-fixing scandal.

The CFTC won’t confirm the whistleblower’s identity, but the person was represented by whistleblower attorney David Kovel, of the law firm Kirby McInerney. Kovel wouldn’t identify his client by name, but did issue a self-congratulatory statement Thursday praising the whistleblower, the CFTC, and (of course) the law firm itself.

“We are pleased that the CFTC has recognized that the whistleblower deserved a substantial award and Kirby McInerney fought hard to ensure that its client was recognized under the current award system. Today, we can say the system works,” Kovel said. 

Yeah, yeah — but who is Kovel’s client? Well, the Wall Street Journal reported earlier this year that Kovel was representing a former Deutsche Bank executive who had been cooperating with the CFTC on the LIBOR rate-fixing scandal. That executive was in line to receive a whistleblower so huge that it threatened to drain all the CFTC’s whistleblower award funds. (Eventually Congress enacted legislation to allow a payout that large.)

So it’s safe to say that whoever that executive was, this is also him (or her) today.

Indeed, the award was so noteworthy that even other whistleblower lawyers issued statements about it, trying to horn in on the action. 

“While a lot of attention is understandably being paid to the size of the award, we also should consider that this huge award means the CFTC and a foreign regulator collected a huge amount and stopped significant wrongdoing because of the whistleblower,” said Erika Kelton, a whistleblower attorney and partner at Phillips & Cohen. “This shows the great value of the CFTC whistleblower program.”

Back to the LIBOR case that led to this enforcement action in the first place. The misconduct was that numerous large banks, Deutsche Bank among them, had been rigging the London Interbank Offered Rate (LIBOR), a crucial benchmarking rate in the banking industry. Multiple regulators eventually sanctioned the banks for a total of more than $9 billion; Deutsche Bank alone had to pay $2.5 billion in 2015. Those enforcement actions led to this whistleblower award today.

One CFTC Voice of Dissension

CFTC commissioner Dawn Stump, a Republican appointed by former President You-Know-Who, did release a statement expressing her opposition to the award. Stump’s complaint was that the $200 million award was calculated partly based on settlement monies paid to “a foreign regulator.” (We don’t know which one, but my guess is the U.K. Financial Services Authority.) 

The CFTC is allowed to calculate whistleblower awards based on settlements to foreign regulators, Stump admitted. But in doing so, those awards then consume CFTC funds that might otherwise be kept available to other whistleblowers, reporting on misconduct relevant to U.S. regulators. In Stump’s own words:

It seems to me that we should be particularly careful in making whistleblower awards based on monetary sanctions collected by a foreign futures authority, because such awards come from funds that would otherwise be available to whistleblowers to the Commission or other U.S. regulators, or to the U.S. Treasury.

Today’s award was the first that the CFTC has ever issued based partly on settlements to a foreign regulator. Stump said she didn’t believe the facts of the case prove that the foreign regulator took action based on the whistleblower’s information — “and thus is insufficient to justify a whistleblower award on top of” the amount the whistleblower is receiving for helping U.S. regulators. 

Kelton, the lawyer at Phillips & Cohen, shot down Stump’s position pretty quickly. 

“I think Commissioner’s Stump’s dissent is based on a misunderstanding of the Dodd-Frank Act, which makes ‘related case’ awards — including those brought by foreign regulators — mandatory, not discretionary,” Kelton said in her statement. “While the rules use the term may,’ that language doesn’t obviate the mandatory language used in the law itself which created the CFTC whistleblower program.”

And so the whistle blows.