The Commodity Futures Trading Commission is asking whistleblowers to help them stop spoofing in the commodities and derivatives markets.
Spoofing is a crime that can be hard to detect without the help of whistleblowers. Those who report specific instances of spoofing through the CFTC whistleblower program are eligible for financial rewards. The CFTC whistleblower program also offers confidentiality and protection against employment retaliation.
The information can be provided to the CFTC anonymously if the whistleblower uses an attorney to file a whistleblower claim.
The CFTC issued a whistleblower alert this week to highlight the benefits of blowing the whistle and its desire to get more information about violations connected to spoofing.
What is spoofing?
Spoofing occurs when a trader places an order in a futures market with the intention to cancel the order prior to execution. Traders engaged in spoofing typically will misrepresent supply and demand to strategically influence other traders.
In practice, this includes:
- Rapid placement and cancellation of bids in futures contracts to benefit other orders and positions.
- Repeatedly and simultaneously placing and then subsequently cancelling multiple orders of the same size.
- Quickly placing and cancelling orders around the best offer, particularly in cases where opposite-side orders have been filled.
- Any scheme designed to artificially manipulate prices.
Spoofing is a federal crime, punishable by up to 10 years in prison per violation.
The CFTC whistleblower program
Anyone with specific knowledge of misconduct or violations of the Commodity Exchange Act can be a CFTC whistleblower – a company insider, a market participant or observer or even a victim of the fraud.
Whistleblower claims about spoofing should contain specific and timely information about the misconduct, including the markets and contracts involved and if possible, precise timestamps and Tag 50 identifiers as well as any supporting documents.
The CFTC also will consider independent analysis about any suspicious trading activity.
Whistleblowers whose information helps the CFTC recover $1 million or more are entitled to awards amounting to 10 to 30 percent of the total amount recovered. The CFTC has awarded whistleblowers rewards that range from $50,000 to $30 million.
The CFTC keeps whistleblowers’ identities confidential to the extent allowed under the law. The Dodd-Frank Act protects CFTC whistleblowers by prohibiting job retaliation and providing strong legal recourse if it occurs.
Learn more about the law’s protections and the CFTC whistleblower program.
Before filing a whistleblower claim, whistleblowers should consider consulting with an experienced whistleblower lawyer to understand the opportunities and risks that could be involved in their cases. (See Choosing a whistleblower lawyer.)
For a free, confidential review of your matter, contact Phillips & Cohen.