On May 20, 2020, the CFTC announced that for the first time since 1994 the Division of Enforcement ("Division") issued new guidance regarding the factors it considers in recommending civil monetary penalties to the CFTC. In introducing these measures, Director of Enforcement James McDonald stated: "[t]ransparency in our procedures, and in particular how we think about penalties, promotes fairness and enhances respect for the rule of law." The new guidance outlines the following three-pronged approach the Division follows when making its recommendation:
- Gravity of the Violation. When weighing the gravity of the violation, the Division evaluates factors including the respondent's role in the violations and state of mind, including whether the conduct was intentional. The Division will also consider the consequences resulting from the violations.
- Mitigating and Aggravating Circumstances. For this prong, the Division will consider any mitigating circumstances surrounding the respondent's conduct, such as self-reporting the violation, the extent of the respondent's cooperation, and any attempts to alleviate the violation by returning victim funds or improving a compliance program. Conversely, the Division will also consider any aggravating circumstances surrounding the respondent's conduct, such as any acts of concealment, obstruction, or prior misconduct.
- Other Considerations. Lastly, the Division may consider other factors when making its penalty recommendation, such as a timely settlement and any sanctions that may be imposed in parallel actions by other civil or criminal authorities or self-regulatory agencies.
It has also been recently reported that the DOJ has created a new sub-unit of the fraud division specializing in combating commodities fraud. This new unit will be overseen by Avi Perry, a trial attorney who has prosecuted several recent high profile cases against financial institutions. The sub-unit is part of the DOJ's broader initiative to expand the scope of its criminal prosecutions for manipulative practices in the commodities markets, including spoofing.
The new CFTC Guidance and DOJ fraud unit represent significant steps in the enforcement and prosecution of the federal commodities laws.
Originally published 28 May, 2020
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