Forex Probe Raises Possibility of Large CFTC Award to a Whistleblower

The Commodity Futures Trading Commission, after announcing the first reward from its whistleblower program in May, could be on the verge of handing out one or more additional awards in the next year if it is able to extract settlements from banks through its probe into currency manipulation.

At the end of last week, a flurry of news about the potential for large settlements involving multiple global regulatory bodies by up to a dozen banks related to misconduct in the foreign exchange market broke when several major banks set aside reserves for a potential settlement. Unnamed sources told the Wall Street Journal that a major deal to resolve the global probe might happen soon.

Any award could be among the largest ever.

 

If a whistleblower exists and an award is made, the amount could easily top the largest handed out by a securities regulator so far. The highest to date is the recent $30 million award by the Securities and Exchange Commission to a foreign whistleblower in September.

Given the dollar amounts at issue, the $104 million by the Internal Revenue Service to Bradley Birkenfeld could even be exceeded. Citigroup investment analysts have estimated that the settlements for currency manipulation could be as high as $41 billion across the entire industry for all regulators. They believe liability for Deutsche Bank alone could reach $6.4 billion.

A tip that led to a $1 billion penalty by the CFTC could easily lead to a reward topping $100 million. The Dodd-Frank Act authorized the CFTC to pay eligible individuals between 10 and 30 percent of the recovery.

There is also the potential for the individual(s) to receive a percentage of the money collected by the Department of Justice or the U.K. Financial Conduct Authority as a “related action.” Section 165.11 of the CFTC Rules provides for awards based on information submitted to the CFTC when it leads to recovery by the Department of Justice or a foreign futures authority.

Six banks have now set aside at least $2.7 billion to resolve allegations by the U.K. Financial Conduct Authority. The latest banks to earmark funds to a potential settlement include Barclays ($800 million), Royal Bank of Scotland ($640 million) and HSBC ($378 million). Others, like Citigroup, have added to their reserves for legal expenses related to the regulatory inquiries.

Regulators have moved quickly against the banks so far.

 

Given the short length of investigations so far, any whistleblowers may be able to avoid what has been one of the biggest obstacles to large rewards. The whistleblower program requires information to be provided on or after the adoption of Dodd-Frank. Since reports are that the U.K. Financial Conduct Authority has only been investigating the banks conduct in this area for the last 18 months, a similar time frame for a CFTC investigation opens up the possibility that the timing hurdle will be avoided.

The Wall Street Journal first reported that the UK investigation was focused on a group of traders from several financial institutions having discussions on a chat room last year. Last October, the Wall Street Journal also reported that the CFTC had also asked major banks for records related to potential currency market manipulation. In March, the SEC also began investigating the potential impact of the banks conduct in forex rates on prices for options and exchange traded funds.

Have information of interest to investigators? There still may be time to earn a reward.

 

Although the law generally favors the first individual to bring information to the government, there may still be helpful information out there that would entitle an individual to a reward. The CFTC provides for rewards when information leads to the opening of a new line of investigation within an existing inquiry or substantially contributes to an existing investigation. See Rule 165.2(i).

The ability of an individual to provide helpful information despite an existing investigation by U.S. authorities has been demonstrated several times in recent years in litigation against Bank of America.

In the multi-billion dollar Bank of America settlement in August of this year, two of the three individuals filing a False Claims Act lawsuit did so in 2014, well after the United States had begun its investigation into violations at BofA.

The ex-BofA employee, Edward O’Donnell, whose allegations against Bank of America for the Countrywide Hustle program led to a $1.27 billion award (currently on appeal) also came forward relatively late in the process. He read media reports about settlement discussions in 2012 with the bank over Countrywide conduct and came forward with information about the Hustle program. The U.S. Government hadn’t been previously aware of its existence.

Another possibility is that an individual is currently helping the CFTC but has not yet filed Form TCR. This should be done immediately.

Settlement talks with the UK regulatory agency are ongoing according to reports and there have been several mentions in the media to expect charges from U.S. authorities by the end of the year. If you have information, please contact a whistleblower attorney at McEldrew Young immediately.