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CFTC Investigating Whether Wall Street Bank NDAs Silence Whistleblowers

CFTC Investigates Wall Street Banks Over NDAs

Recently the Commodity Futures Trading Commission (CFTC) asked the Bank of America, JP Morgan Chase & Co., Citigroup Inc., and other Wall Street banks for copies of the non-disclosure agreements (NDAs) they use with employees and customers in their swaps and clearing businesses. The federal agency is investigating whether the banks’ NDAs silence possible whistleblowers.

Details of CFTC and SEC Rules Protecting Whistleblowers

CFTC Rule 165.19 prohibits a person from taking any action to impede an individual, such as a whistleblower, from communicating with CFTC staff about a possible violation of the Commodity Exchange Act or enforcing or threatening to enforce a confidentiality agreement that does the same.

According to news reports, enforcement staff in the CFTC’s New York office is looking into whether the NDAs include language that could hamper whistleblowers from reporting or fail to make clear that fraud can be reported to the CFTC.  The banks have not been accused of wrongdoing and the investigation could result in no action.

The investigation expands on the recent Securities and Exchange Commission (SEC) probes into whether such agreements may be used to dissuade workers or clients from reporting potential violations of securities laws to the agency.  Like the CFTC’s rule prohibiting interference with communication to the agency about misconduct, SEC Rule 240.21F-17 similarly prohibits a person from taking any action to impede an individual from communicating with SEC staff about a possible securities law violation or enforcing or threatening to enforce a confidentiality agreement that does the same.  The SEC has brought over 20 actions against companies alleged to have violated this rule.

Recent SEC Actions Against JP Morgan

In January, JP Morgan (JPMS) agreed to pay an $18 million civil penalty to resolve the SEC’s charges that the company violated the agency’s whistleblower protection rule by impeding clients from communicating with the SEC.  According to the SEC’s press release, from March 2020 through July 2023, JPMS asked retail clients to sign confidential release agreements if they had been issued a credit or settlement from the firm for more than $1,000. The agreements required the clients to keep the settlements confidential and although the agreements did not prohibit clients from responding to SEC inquiries, they did prohibit clients from voluntarily contacting the SEC.  JPMS admitted no wrongdoing.

In commenting on the settlement with JPMS, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said, “Whether it’s in your employment contracts, settlement agreements, or elsewhere, you simply cannot include provisions that prevent individuals from contacting the SEC with evidence of wrongdoing. But that’s exactly what we allege J.P. Morgan did here. For several years, it forced certain clients into the untenable position of choosing between receiving settlements or credits from the firm and reporting potential securities law violations to the SEC. This either-or proposition not only undermined critical investor protections and placed investors at risk, but was also illegal.”

Broader Impact and Other Companies Under Scrutiny

Last year, Bloomberg News reviewed confidentiality agreements available in public filings and found that over the previous two years, at least a dozen companies omitted from their agreements exceptions for reporting violations of law to the SEC.  The same month that report was published, complaints were filed with the SEC alleging some of the U.S.’s top technology firms, including Apple Inc. subcontractor, Electronic Arts Inc. and Block Inc. were trying to silence employees with non-disclosure agreements that prohibited workers from reporting misconduct to the SEC.

Importance of Whistleblower Protections and Legal Support

Strong whistleblower protections are a foundation of the whistleblower programs created by the Dodd-Frank Act. The Dodd-Frank whistleblower programs incentivize individuals to blow the whistle on violations of federal securities laws or commodity laws by offering whistleblowers substantial financial rewards, protection from job retaliation, and confidentiality.

If the SEC or CFTC investigates allegations and recoups over $1 million in sanctions in an enforcement action, the whistleblower may receive a percentage of the recovery as an award.  For a free, confidential review of your matter by experienced SEC or CFTC whistleblower lawyers, contact Phillips & Cohen.

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