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US CFTC enforcement cases, sanctions on the rise in FY-18

Highlights

Spoofing, manipulation cases highlighted

Whistleblower awards also spike in FY-18

Washington — The US Commodity Futures Trading Commission reported an increase in enforcement actions and civil penalties in FY-18, including a rise in cases charging manipulative conduct.

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The agency, which plays a key role in overseeing derivatives markets for energy and other commodities, said it filed 83 cases and obtained more than $950 million in monetary sanctions in FY-18. It imposed monetary judgements of $10 million or more in 10 cases, more than in any other year, the CFTC said in its annual enforcement report released late last week.

While some observers have questioned whether the agency would relax enforcement under Republican leadership, particularly with its new emphasis on cooperation and self-reporting, CFTC Chairman Christopher Giancarlo said the report demonstrates follow through on his commitment that there would be no pause or let up in that oversight.

ENFORCEMENT METRICS

"This was a year of incredibly vigorous enforcement at the CFTC," said Enforcement Director James McDonald, in a speech last week.

"That's true whether you measure it by the number of filed cases (third highest in CFTC history), amount of penalties imposed (fourth highest), number of large-scale matters (highest), types of cases charged (most ever involving manipulative conduct), number of parallel criminal actions (highest), percentage of cases that include individual charges (more than two-thirds), or the number and amount of whistleblower awards (highest on both counts)."

Enforcement focused on four priorities: market integrity, protecting customers, individual accountability and coordination with other regulators and criminal authorities, the report said. CFTC also launched task forces in the areas of "spoofing" and manipulative trading; insider trading and protection of confidential information; virtual currency and the Bank Secrecy Act.

SPOOFING

Spoofing refers to disruptive trading practices such as bidding or offering with the intent to cancel before execution. Of 83 cases filed, 26 involved manipulative conduct, false reporting and spoofing, the enforcement report said.

Tyson Slocum of Public Citizen highlighted the uptick in spoofing enforcement numbers, noting that CFTC earlier this year secured real-time data reporting, allowing enforcement to have immediate and complete market data.

"This was done after the CFTC expressed displeasure with the exchanges over their lax enforcement record of spoofing," he said.

The enforcement report noted that the advent of the electronic order book presented new opportunities for bad actors to inject false information into the markets, potentially driving away traders and reducing liquidity.

In one of the spoofing cases, involving Geneva Trading, the commission found spoofing in a variety of futures contracts including RBOB gasoline and light sweet crude oil.

The report also highlighted the CFTC's focus on holding specific individuals accountable, charging "primary wrongdoers" and seeking to work up the chain to supervisors and executives. McDonald has emphasized the use of cooperation and self-reporting to help hold the highest culpable individuals accountable.

Whistleblower awards were also on the rise, with five awards totaling $75.6 million exceeding the cumulative total previously issued by the CFTC. The commission noted that it strengthened whistleblower protections at the end of FY-17 and has received more whistleblower tips and complaints in FY-18 than in any year prior.

-- Maya Weber, maya.weber@spglobal.com

-- Edited by Matt Eversman, newsdesk@spglobal.com