Should the CFTC Prepare for More Commodities Whistleblowers?

We may get our first look at the effect of market problems on the number of whistleblowers utilizing the Dodd-Frank programs in the next few months or years. The commodities market has hit bear market mode as 18 of the 22 components of the Bloomberg Commodity Index have dropped more than 20 percent from recent highs.

Bloomberg seized on the drop in prices to run an article titled Commodities Are Crashing Like It’s 2008 All Over Again. According to the report, the number of commodities in a bear market is the same as at the height of the financial crisis in October 2008. The price of Bloomberg’s Commodity Index has fallen to below its 2008 lows and is quickly approaching the 2001-2002 lows.

Hedge funds are getting nervous. There are already a few pulling out of raw materials and liquidating their funds in this area. The amount of money under management in this area is about 15% lower than three years ago as demand among investors has fallen.

The stocks of mining and energy companies are also feeling the effects of prices at their lowest point in more than a decade. Demand for raw materials is falling in emerging markets as the double digit growth boom in China has died down. As a result, miners have lost more than $100 billion this year in market capitalization.

The CFTC whistleblower program has generally received about 10% of the tips that go to the Securities and Exchange Commission. It is in charge of enforcing the Commodity Exchange Act and has oversight of commodities and derivatives trading. It is a smaller agency, both in terms of budget and the number of personnel.

Yet with falling prices in commodities, fraud and manipulation in the industry could be more easily exposed to ethical employees who may report the corporate misconduct to the whistleblower program. Previously, we’ve written about how corporations let the good times roll during economic expansions and their wrongdoing comes to light when the recession hits. With the Dow Jones still near its all time high, the CFTC might be the first to experience any increase in the number of whistleblowers.

Earlier this year, CFTC Whistleblower head Chris Ehrman told Law360 that he expected the regulator would be awarding one or two significant monetary rewards to whistleblowers. To date, the only announced payment by the CFTC to a whistleblower was for $240,000 in May 2014.

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