CFTC Resolves First Action for Impeding Whistleblowers Over Objections of Two Commissioners
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  • CFTC Resolves First Action for Impeding Whistleblowers Over Objections of Two Commissioners


    On June 17, 2024, the Commodity Futures Trading Commission (“CFTC” or “the Commission”) issued a groundbreaking order against an energy, metals, and minerals commodity trading company (the "Company”) registered in Singapore. The Order resolved three separate alleged violations of the Commodity Exchange Act (the “CEA”) and related CFTC regulations, and resulted in fines totaling $55 million. While the resolution primarily focused on allegations that the Company misappropriated nonpublic information and manipulated the gasoline market, the Order also encompassed the Company’s alleged interference with whistleblowers through its use of nondisclosure clauses that did not explicitly exempt disclosures to regulators. This component of the resolution, which the CFTC announced as its “First Action Against an Entity for Impeding Whistleblower Communications,” was publicly criticized by two CFTC Commissioners who suggested the Enforcement Division had enlarged the scope of Regulation 165.19(b). 

    1. Misappropriation of Material Nonpublic Information

      The CFTC alleged that the Company engaged in misappropriation of material nonpublic information (“MNPI”), from 2014 through 2019, by obtaining MNPI from a Mexican trading entity (“MTE”), including information regarding the MTE’s pricing formulas, monthly import “program” and competitor pricing information on bilateral negotiations, which it knew or was reckless in not knowing had been transmitted in breach of the MTE employee’s duties to MTE. The Order also found that the Company’s traders traded while in knowing possession of this information.
    2. Manipulative Conduct 

      In addition to misappropriation of MNPI, the CFTC alleged that the Company engaged in manipulative conduct related to benchmark prices, further violating the CEA and CFTC Regulation 180.1. The Order found that from January to March 2017, the Company developed and deployed a large fuel oil export program which was designed to export fuel from the U.S. Gulf Coast to Singapore. The Company also established a long derivative position in U.S. Gulf Coast high-sulfur fuel oil which was intended to serve as an economic hedge for the Company’s anticipated fuel purchases. 

      According to the CFTC, the Company entered into contracts for sales of approximately 3.5 million barrels of fuel to ship from its American entity in Houston to Singapore, between February and April of 2017. The Company sought purchases of fuel barrels against the short physical position, but ultimately the Company’s long derivative position was in excess of its short physical position. The difference in derivative positions meant that increases in the USGC HSFO benchmark would benefit the Company, because the gains from the derivative position would outweigh the increased prices it needed to pay for the physical fuel oil. In February 2017, as alleged by the CFTC, the Company bid heavily for and bought 3.6 million barrels of fuel oil in the Platts MOC trading window, driving up prices, and ultimately creating what the CFTC characterized as “artificially high USGC HSFO Benchmark values throughout February 2017 that were not reflective of ordinary forces of supply and demand.” 
    3. Contracts that Impeded Voluntary Communications with the Commission

      Finally, in the portion of the Order that has received the most attention, the CFTC alleged that the Company violated Section 23(h)–(j) of the CEA and Regulation 165.19 by “having employees and former employees sign non-disclosure agreements that did not include carve-out language expressly permitting communications with the Commission or law enforcement except to the extent required by law or court order.” Rule 165.19(b) states “No person may take any action to impede an individual from communicating directly with the Commission's staff about a possible violation of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications.” As alleged by the CFTC, between 2017 and 2020, the Company required current employees and requested former employees to sign agreements with broad non-disclosure provisions that prohibited the sharing of confidential information with third parties, including regulators and law enforcement officers. In its first action of this kind, the CFTC followed similar SEC actions in determining that a company’s failure to include explicit carveouts permitting whistleblowing activity in confidentiality agreements “impeded” whistleblowers in violation of 165.19(b).
    4. Commissioners’ Statements of Criticism 

      On the same day the CFTC announced its action against the Company, Commissioners Summer K. Mersinger and Caroline D. Pham issued separate statements expressing concerns over the CFTC’s application of Rule 165.19(b). The Commissioners disagreed with the CFTC’s interpretation of terms such as “action” within Regulation 165.19 and its application to the Company’s employment agreements.

      Commissioner Mersinger’s statement concurred with the CFTC’s enforcement action, but withheld full support noting, “once again we are falling victim to regulating by enforcement this time through a first-of-its-kind-charge under Regulation 165.19(b) of the Commission’s Whistleblower Rules.”[1] Commissioner Mersinger disagreed with the Commission “ignoring the regulatory definition of the word ‘action’” and the common understanding of the word “action” used in Regulation 165.19(b). Mersinger explained that “action” as defined in the regulation“ generally means a single captioned judicial or administrative proceeding” and therefore the definition is inconsistent with the Commission’s finding that an employment agreement, in and of itself, rises to the level of an “action” impeding an individual from communicating directly with the Commission. 

      Commissioner Pham issued a statement voicing additional concerns with the Order and its application of Regulation 165.19(b).[2] Pham expressed concerns that the CFTC Enforcement Division inaccurately used the term “non-disclosure agreements” in describing the Company’s relevant agreements with employees and failed to reference the specific contractual language that the staff found violate Rule 165.19. Pham said that the Commission’s inaccurate use of terms and lack of detail leave “companies and lawyers all over the world . . . playing a guessing game to revise tens or hundreds of thousands of documents for both current and former employees that fail to include a carve-out for the magic words ‘Commodity Futures Trading Commission’.” Pham further stated, “As I keep reminding the Commission, we are not the SEC, and the SEC’s orders or precedents do not provide sufficient notice to the public for CFTC interpretations because we are a different agency with a different statute, regulations, and markets.”

      While the CFTC’s first enforcement action under Rule 165.19(b) is notable and companies are advised to ensure their template agreements with employees comport with the CFTC’s views, which are consistent with earlier SEC enforcement actions,[3] the objection to this of the application of Rule 165.19(b) by the two Commissioners is also notable and it remains to be seen how these Commissioners’ views will impact future enforcement decisions related to impeding whistleblowers.

    [1] CFTC, Concurring Statement of Commissioner Summer K. Mersinger Regarding Settlement With Trafigura Trading LLC (June 17, 2024),

    [2] CFTC, Statement of Commissioner Caroline D. Pham Regarding Settlement Order with Trafigura Trading LLC (June 17, 2024),

    [3] SEC, J.P. Morgan to Pay $18 Million for Violating Whistleblower Protection Rule (Jan. 16, 2024),

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