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The Commodity Futures Trading Commission Files Its First Actions For Fraud In The Voluntary Carbon Credit Market
10/22/2024On October 2, 2024, the Commodity Futures Trading Commission (“CFTC”) filed a complaint in the U.S. District Court for the Southern District of New York against the former chief executive officer of a carbon credit project developer. The CFTC complaint alleges that the CEO, from approximately 2019 to December 2023, reported false and misleading information to at least one carbon credit registry and to third-party reviewers, presenting a misleading impression of the quality of emissions-reduction projects to obtain carbon credits above what the company was entitled to receive, and sold them to others.
On the same date, the CFTC filed and settled charges against a leading participant in the voluntary carbon credit market (the “Company”) after the Company acknowledged engaging in a deceptive scheme relating to projects intended to reduce carbon emissions, such as installing more efficient cookstoves or LED light bulbs in sub-Saharan Africa, Asia, and Central America. According to the order, the Company allegedly fraudulently reported false, misleading, and inaccurate information, allowing the Company to issue millions of carbon offset credits that it was not entitled to receive. The Company’s Chief Operating Officer admitted to intentionally participating in the scheme and acknowledged his conduct violated the Commodity Exchange Act (“CEA”) and CFTC regulations. The order requires the Company to (1) pay a $1 million civil monetary penalty, (2) cease and desist from violating the applicable provisions of the CEA and CFTC regulations, and (3) comply with certain conditions and undertakings, including the cancelation or retirement of voluntary carbon credits sufficient to address the violative conduct. The Company received lesser penalties, including a reduced penalty, based on its cooperation.
The U.S. Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission filed parallel matters for related conduct.
As the first of their kind, CFTC Director of Enforcement, Ian McGinley, remarked on the importance of the fraud charges in connection with the issuances of sales and voluntary carbon credits: by doing so “…the CFTC demonstrates its commitment to vigorously fight fraud in its markets, whether long-established or new and evolving, such as the carbon credit markets.”
