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New CFTC whistleblower legislation: the CFTC Fund Management Act

Photo by Ken Lund via Flickr (CC BY-SA 2.0)

To bolster the Commodity Futures Trading Commission whistleblower program, US Sen. Chuck Grassley has introduced the CFTC Fund Management Act.

The CFTC whistleblower program “has grown at a much faster rate than Congress expected when we created it back in 2010,” Grassley said in a speech on the Senate floor March 2.

As a result, the CFTC whistleblower program is facing a major shortfall in funding unless Congress increases the funds set aside for CFTC whistleblower rewards and changes the way the CFTC Whistleblower Office is funded, says Grassley (R-Iowa), a staunch whistleblower advocate.

The CFTC Fund Management Act would increase the cap on the Customer Protection Fund, which is used to pay for awards and operate the CFTC Whistleblower Office, from $100 million to $150 million.

The legislation also would require that funds needed for the operating expenses of the CFTC Whistleblower Office be held in a separate account rather than drawn from the Customer Protection Fund.

Co-sponsors of the bipartisan bill include Sens. Maggie Hassan (D-N.H.), Joni Ernst (R-Iowa) and Tammy Baldwin (D-Wis.)

Here are Grassley’s speech and the transcript.

“We Need to Save the CFTC Whistleblower Program from Financial Shortfall”

Prepared Floor Remarks by US Sen. Chuck Grassley (R-Iowa)

March 2, 2021

TRANSCRIPT

The Commodity Futures Trading Commission operates a highly successful whistleblower program.

As one of the senators who led the effort to establish that program back in 2010, I’m proud of what it has accomplished.

Since the Commission issued its first whistleblower award in 2014, whistleblowers have helped the agency root out waste, fraud and abuse in the commodities trading industry and recover nearly $950 million.

That’s a lot of restitution for harmed investors. It’s also a lot of money going to the U.S. Treasury and to American taxpayers.

Now, if Congress doesn’t act quickly, all of that progress could come to a swift and sudden halt.

Several months ago, the Commission contacted my office to tell me that its whistleblower program is facing the prospect of a sudden cash shortage – one that could require it to furlough staff and even close down operations.

The reason for this potential shortage isn’t that the whistleblower program has wasted or mismanaged funds, or that it hasn’t been doing its job.

It’s just the opposite.

Whistleblowers have been approaching the Commission to report actionable claims of wrongdoing in far greater numbers, and its whistleblower program has grown at a much faster rate than Congress expected when we created it back in 2010.

Last year, the Commission issued a single whistleblower award for approximately $9 million. In the past, it has given out awards as high as about $30 million.

As a result of these successes, in the near future, the Commission faces the possibility of having to pay out several large whistleblower awards in close succession. If that happens, the whistleblower program could run short of having the cash on hand it needs to pay these awards and other office operating expenses.

Again, this is not an issue of bad management. It just means the program works even better than we thought.

By law, the Commission is only allowed to keep a certain amount of cash on hand to pay out awards, and that amount is capped at $100 million. Because Congress expected the program to remain relatively small, it set the cap for its Customer Protection Fund, which is also used to pay the operating expenses of the whistleblower office, lower than the caps it has set for larger whistleblower programs such as the one at the SEC.

Increasing the cap will ensure that the Commission can keep enough of the proceeds from the fines it collects on-hand to pay whistleblower awards and also ensure that the program itself doesn’t run out of money.

In 2019, I introduced the Whistleblower Programs Improvement Act, which increased the cap on the fund and made several additional improvements to the program, including provisions that would allow the Commission greater flexibility to share information with law enforcement.

I did this because I realized that as the awards became bigger and more frequent, it was only a matter of time before the Commission would run into trouble.

A year later, my predictions came true and the Commission notified me of their impending money problems.

I introduced a bipartisan bill alongside Senators Hassan, Ernst and Baldwin in December to quickly address this problem. I worked with then-Chairman Roberts and then-Ranking Member Stabenow to include language that would have made the most critical updates for the program in last year’s Omnibus.

These updates would have ensured that the whistleblower office could keep enough funds on-hand to pay upcoming whistleblower awards and continue to fund its own operations.

Unfortunately, that effort also hit a roadblock and the language wasn’t included by the House of Representatives.

Now, two months have passed, and a matter that was already urgent has become even more critical.

The Commission told my office they’ve now completely stopped work on four cases with potentially large awards that could bankrupt the fund. It’s now a conflict of interest for staff to even work on those cases because they know if they were to approve a large award, it could mean putting themselves out of a job.

That’s unacceptable. Whistleblowers shouldn’t have to wait just because Congress has been dragging its feet on this issue.

That’s why I reintroduced my bill and ask that my colleagues support this legislation to fix the cap and protect the whistleblower program.

This standalone bill is short and simple. It increases the cap on the Customer Protection Fund from $100 million to $150 million and requires that funds needed for the operating expenses of the whistleblower office be held in a separate account, to ensure that the whistleblower office will have the resources it needs to pay staff while the amount in the customer protection fund builds up to a higher level.

Allowing this successful whistleblower office to close, simply because it’s doing its job, is unacceptable to me. It ought to be unacceptable to every member of Congress.

It’s important that we act now to ensure that doesn’t happen.

That’s why I urge my colleagues on both sides of the aisle, support this bipartisan legislation.

 

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