Category: United States of America

Source: US Commodity Futures Trading Commission

Throughout my career in federal law enforcement, I have been a proponent of the government providing incentives for self-reporting and cooperation.  There is public interest in a company finding its own violation of the law as fast as possible, stopping it, reporting it, and fixing it so that it never happens again.  The government also has an interest in conserving investigative and litigation resources while bringing accountability, and a company’s full cooperation assists in that interest. 
To increase those incentives, I propose that the CFTC as an agency increase transparency in public documents about enforcement decisions in specific cases, rather than rely on public documents with limited information supplemented by individual Commissioner statements.  I am concerned that transparency and fair notice are often limited in public documents on how self-reporting, cooperation and remediation was weighed, which cuts against the government providing incentives. 
I also provide this general explanation as to how one Commissioner evaluates cases and cooperation credit—an explanation that supplements the February 2025 CFTC Division of Enforcement Advisory on Self-Reporting, Cooperation and Remediation (“Advisory”), which is not binding on the Commission or any Commissioner. While this Advisory is focused on the monetary penalty part of a settlement, with a self-reporting and cooperation monetary credit derived from a formula based on a 10% to 55% reduction set by a matrix, my evaluation covers more than that, including monetary and non-monetary credit.
While the incentive to self-report and cooperate includes a credit that may lower the penalty, there are non-monetary government determinations for each case that may also reflect credit that should be considered as incentives.  The government may decline to file charges.  Where charges are filed, the government may recognize a defendant’s self-reporting, cooperation, and remediation by limiting the charges, limiting other remedies, undertakings, or other outcomes, and through the language used in public documents. 
The first step in my evaluation of a case is to determine whether the CFTC should settle a case or litigate.  This decision is less complex for new cases compared to pending litigation.  When filing new cases, the government should be prepared to litigate.  The decision to file a new case should not be whether a successful verdict is guaranteed, but instead whether there is merit to filing the case.  I have made decisions to support meritorious first-of-their-kind cases where success is not guaranteed, as evidenced by my law enforcement record. 
The U.S. government’s decisions in pending litigation involve a more complex array of considerations.  With more than two decades of law enforcement experience representing the United States of America, I have always made decisions on pending litigation on the law, facts, and an analysis of litigation strategy and risk.  My experience has also shown me when it is best for the government to accept a plea or otherwise resolve a case.  This is particularly true in cases where litigation risk increased significantly over the course of the litigation, especially if it increased in a way that puts something larger at stake that should be protected.  An increased risk that a court may unnecessarily narrow the governing statute based on the facts before it is one example.          
My evaluation of settlement terms is based on a number of factors that make up the total outcome of a case.  This includes whether the defendant is a recidivist or repeat defendant, the nature of the charges, who is charged, the nature of each remedy and undertaking, and the language used by the government in public documents. 
The best way to provide incentives to cooperate is for the CFTC as an agency to increase transparency into how the CFTC evaluated each of those factors, rather than relying on limited discussion of those factors, supplemented by individual Commissioner statements.  For good reason, it is standard practice that the U.S. government speaks with one voice in pending litigation, rather than have federal leaders individually comment, which may risk prejudicing or undermining current and future legal positions and can be cited by current or future defendants. 
It can be difficult to compare new cases to past precedent where it is not clear in the public documents what specific factors led to the evaluation of the past charges, penalty, other remedies, undertakings, and the language used.  This is not always because of government decisions.  Practitioners may say that they want more regulatory clarity, even while they advocate against “speaking orders,” limiting clarity. 
Increasing transparency about the factors the CFTC weighed when evaluating the outcome of a case can strengthen the incentive for self-reporting and cooperation.  I appreciate that the Division of Enforcement intended to do so for the penalty outcome in the Advisory.  But I find that the evaluation is not so straightforward.  Rather than comment on individual cases, which I rarely do as I follow standard government practice that the government should speak with one voice, I seek to increase transparency by providing general insight into my own evaluation of a case, an evaluation shaped by over two decades of federal law enforcement experience.  
I encourage all defendants seeking self-reporting and cooperation credit, as well as the CFTC Enforcement Division, to address all the potential factors and outcomes, rather than focusing on penalties alone.  As a Commissioner, the penalty is not where I start in my evaluation, and it is not always the most important factor to a defendant or the government.  Once I determine that settlement may be appropriate, the factors that I evaluate are:
Factor 1: Recidivist, Repeat Defendant, Parallel Defendant
As a Commissioner, my evaluation starts with whether the defendant is a recidivist or a repeat (or parallel) defendant of the CFTC or other government agencies.  While the notion of recidivism is briefly mentioned in the Advisory, it does not address whether or how a recidivist defendant would be treated.
I would find it completely inconsistent with the history of CFTC enforcement and broader federal enforcement if the Enforcement Division recommended giving significant credit off a penalty to a recidivist even if they promptly self-reported the second or third violation, had the highest level of cooperation, and fully remediated.  That defendant should have fixed the problem after the first time, and I would question their credibility on remediation.   
Moreover, the words “recidivist” or “recidivism” are too often narrowly defined, including in the Advisory, which refers on page 3 to “the same specific violation and facts and circumstances.”  A second or third violation rarely has the same specific facts and circumstances.  Moreover, limiting recidivism to the same specific violation leaves out similar activity that may have been raised by the CFTC, the SEC, DOJ, or other federal agency, or an exchange.  I will also look to see if the defendant is a repeat defendant before the CFTC, and I will review those cases, putting particular emphasis on similar conduct, particularly in recent history.  I expand that evaluation to other agency cases (SEC, DOJ, etc.) against the defendant, looking for similarities, recent conduct, or systemic or widespread failures. 
It also matters whether the defendant is facing parallel federal cases.  It is appropriate for the CFTC to take into account penalties and other monetary remedies required by another agency, and where appropriate, provide credit.  Sometimes this credit is not clear from the public documents, as it is not actually listed as a credit, but instead taken into consideration in determining outcomes.
Factor 2: The Harm Posed
The government has a strong public interest in protecting individuals harmed by violations of CFTC laws and rules through accountability.  I evaluate cases by looking at the gravity of the violation, as well as any aggravating or mitigating factors. 
Significant harm or risk of harm to individual victims should result in a strong resolution. This is especially true for harm to retail customers or vulnerable victims.  The rise in retail customers in CFTC-regulated markets may also mean that past precedent before the rise in retail may not be comparable.  A strong resolution is also appropriate for significant harm to end users, including for example farmers and agricultural producers. 
Additionally, as a markets regulator, the CFTC has a strong public interest in bringing accountability and preventing significant harm or risk of harm to market integrity or financial stability.  Harm posed to markets or financial stability can ultimately impact individuals, as seen in the 2008 financial crisis or in artificially inflated prices due to market manipulation.   
It is important to evaluate the purpose behind the laws and rules violated.[1]  There may also be a need to send a pronounced message about particular conduct or practices.   
Factor 3: Scienter
Scienter will play a substantial role in determining self-reporting and cooperation credit.  The higher the scienter, the stronger the need for accountability and deterrence in all the potential outcomes (charging decisions, language used in charging documents, penalties, other remedies and undertakings, etc.), which may limit cooperation credit. 
I strongly disagree with the statement in the Advisory that “In extraordinary circumstances—for example where a person is the first to self-report pervasive fraud, manipulation, or abuse involving multiple parties, and also provides Exemplary Cooperation—the Division may recommend a declination.”  Such a statement is inconsistent with historical federal civil law enforcement where the first one in the door is often charged, albeit sometimes with a lesser charge or other outcome.  
I would also find it challenging to assign significant self-reporting and cooperation credit in cases with a high level of scienter, particularly where there is significant harm.  Otherwise, a defendant could intentionally violate the law, benefit for some time and cause (or pose) significant harm, but then seek to limit culpability and accountability by promptly self-reporting, cooperating, and remediating. I would also find it challenging to assign significant self-reporting and cooperation credit in cases where the defendant engaged in obstruction, lying or concealment in an investigation or examination by the CFTC, SRO, exchange or other federal agency, on the same conduct, but later self-reported and cooperated.
Scienter is not limited to intentional or willful conduct.  Federal laws establish different levels of scienter.  I will consider the levels of scienter as established by the law, in determining all outcomes of the case.  As one of the scienter considerations, it is important to evaluate the age of the rule.
Recidivism is one factor that plays into the scienter determination, but there are others. Failure to put resources into systems and staff to ensure compliance is a choice even if the level of scienter for a specific violation does not rise to the level of intentional conduct. 
Factor 4: The Nature of Charges and Who is Charged
The nature of the charges and who is charged may reflect an unstated non-monetary credit for self-reporting, cooperation and remediation.  An important part of the evaluation of a case is whether the Enforcement Division could have recommended more charges, but pulled back, taking into consideration a defendant’s self-reporting, cooperation, and remediation.  Defendants should recognize the government’s decision to forego charges that it could have pursued as one of the most powerful incentives to self-report and cooperate, short of the government not bringing charges. 
Charges against multiple companies and individuals are also part of the evaluation.  This is particularly true in cases with a high degree of scienter or in cases with widespread or longstanding illegal activity. The government’s decision not to pursue charges against multiple companies or individuals based on self-reporting and cooperation may also be recognized as a non-monetary credit.
Factor 5: Acceptance of Responsibility
The level of a defendant’s acceptance of responsibility is an important factor to consider in weighing self-reporting and cooperation credit.  This includes, as the Advisory discusses, the fullness of the self-reporting and cooperation. 
Acceptance of responsibility also includes defendant admissions in appropriate cases, as discussed in the Advisory.  Practitioners in the CFTC space are aware of my statement on the public interest in increased accountability, transparency, and deterrence by the CFTC requiring defendants to admit wrongdoing in appropriate cases.  I created the Heightened Enforcement Accountability and Transparency test (the HEAT test) in September 2022.[2]  It has since become common practice for defendants to analyze the HEAT test in their materials to the Enforcement Division.  Since I announced the HEAT test, the Commission has required defendants to admit their wrongdoing in 57 cases.[3] 
I evaluate all the above factors before I evaluate the appropriate penalty. 
Factor 6: Accountability and Deterrence
The goal of a penalty is accountability and deterrence.  Therefore, I look to determine the appropriate penalty necessary to achieve accountability and deterrence. 
Accountability through a penalty reflects the seriousness of upholding the law, and the government’s interest in enforcing the law.  Deterrence includes specific deterrence—to deter that defendant from breaking the law again.  Therefore, the facts about that particular defendant matter.  It also includes general deterrence—deterring others who may be breaking the law now or in the future. 
In determining the penalty necessary to achieve accountability and deterrence, past precedent is helpful if truly applicable.  Too often it is approached as a formulaic driver of the appropriate penalty. I find it unhelpful to see comparisons that count the number of violations and the number of years in each past case and compare those with the case before the Commission.[4]  Lost in that approach is the reasoning behind the penalty—accountability and deterrence—based on the facts and circumstances of the case before the Commission.   
I would prefer to see a discussion and analysis on accountability in a section on the gravity of the specific violation by this defendant versus the gravity of other cases. The same law can be violated in different ways that carry different levels of gravity.  I would also prefer to see a discussion and analysis about the seriousness of upholding the specific law violated and a discussion and analysis of both specific and general deterrence.  In some cases, the CFTC may wish to send a pronounced deterrent message.  This may be the case when the CFTC starts seeing a pattern of violations or finds an egregious violation.   
Additional transparency into the CFTC’s decision making in each case can help ensure that past precedent is understood and appropriately applied.[5]  As one example, in some cases, the Enforcement Division would have recommended a larger penalty, but for the financial condition or size of the company, inability to collect the penalty, or a parallel case.  In those instances, the CFTC and defendants should be cautious about using those cases as precedent and the CFTC should explain that.  If the explanation is sensitive, the CFTC could include a statement to the effect that due to extenuating circumstances, that case should not be viewed as precedential.
The timing of a case also contributes to penalty calculation.  In some cases, the first enforcement cases soon after the implementation of a new rule had lower penalties, where the CFTC considered recent implementation of the rule as a mitigating factor, even if not publicly stated. That mitigation would decrease over time, resulting in higher penalties.  Swap data reporting cases are a good example.  For that reason, early cases are less comparable.  It’s less about the idea of ratcheting up the penalty over time. It’s more of an idea that in the beginning, the CFTC ratcheted down the penalty because of the mitigating factor that was later removed.   
Factor 7: Other Remedies and Undertakings
In evaluating all outcomes of the case, other remedies are often appropriate to achieve the goals of accountability and deterrence.  This includes statutory disqualifications, bans on future trading or other activity, a company holding individuals accountable, and other outcomes. Internally, I have often emphasized the importance of undertakings that are effectively designed to prevent future violations and requested additional undertakings.      
The Enforcement Division may recognize self-reporting and cooperation by foregoing certain remedies or undertakings.  I have often seen the Enforcement Division not recommend undertakings where the defendant has either substantially remediated or offered a remediation plan.  I have also seen the Enforcement Division not recommend that the CFTC require a monitor where the Division trusts the defendant to follow through with its remediation plan.  These are examples of non-monetary cooperation credit that the CFTC should publicly recognize to increase transparency and incentives.
Conclusion
The bottom line is that it should be worthwhile for a defendant to self-report and cooperate with the U.S. government and the government should make that clear through the CFTC increasing transparency in public documents on specific cases.  I hope that this statement brings greater transparency to how one Commissioner evaluates cases and considers both monetary and non-monetary credits for self-reporting and cooperation in determining the total outcome in the case.  I propose that the CFTC as an agency increase transparency into the decision-making of outcomes (both monetary and non-monetary) in specific cases to increase the incentive for companies to self-report and cooperate. 

[1] Recently I have heard practitioners discuss compliance-related rules effectively as non-serious foot faults, where there was no obvious harm. Many of these rules were put into place in the wake of the financial crisis, when the market and the government were in the dark.  I do not consider reporting failures or record keeping violations as foot faults. Without that reporting, the CFTC is limited in its core mission to oversee markets, including conducting surveillance to ensure market integrity and financial stability, and evaluating a defendant’s scienter.

[3] I have also voted in favor of certain cases that did not include defendant admissions where the HEAT test weighed against requiring admissions.

[4] I would expect the Enforcement Division to review the Enforcement Division memos to the Commission in relevant cases, not just the public order, to complete their analysis.  I would also encourage the Enforcement Division to address those factors in the public documents for cases going forward.

[5] Additionally, I have often seen a defendant’s counsel not raise certain cases in their analysis of past precedent or cite to cases that are not directly on point.  As we are aware of and analyze past cases, I view that as a defendant giving up its opportunity to share their voice with the Commission.

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