CFTC spells out path to co-operation credit

Employees at derivatives-trading firms and related organizations have been given formal insight into how they can help things go more easily for them in regulatory investigations – while their employers have gained updated advice.

The Commodity Futures Trading Commission’s (CFTC) division of enforcement on January 19 issued two advisories outlining the factors it will consider in evaluating co-operation in the agency’s investigations and enforcement actions.

One new advisory outlines the factors it will consider for individuals who want to receive the benefits of co-operation, the other updates existing guidance for co-operation by companies. Officials write in the advisories that the agency looks for more than ‘ordinary co-operation or mere compliance with the requirements of law’ when considering whether to give credit for such efforts. This credit can range from the division recommending no enforcement action to recommending reduced charges or sanctions in connection with enforcement actions.

The CFTC, like other agencies, has traditionally given credit for co-operation in determining whether enforcement action is warranted, the nature of charges that should be brought and the appropriate level of sanctions. The advisories are designed to further incentivize full and truthful co-operation, according to officials.

The division may at its discretion consider the following factors in assessing whether a company’s or individual’s co-operation warrants credit. These are:
 

• The value of the co-operation to the division’s investigation(s) and enforcement action(s)
• The value of the co-operation to the commission’s broader law enforcement interests
• The culpability of the company or individual and other relevant factor
• Any ‘unco-operative conduct’ that offsets or limits credit that the company or individual would otherwise receive.

In terms of the value of an individual’s co-operation with an investigation or enforcement action, for example, the division may consider issues such as whether it resulted in ‘material assistance’, the timeliness of the individual’s initial co-operation – such as whether the individual was first to report the misconduct to the CFTC or to offer co-operation – and whether the co-operation was provided before he or she had any knowledge of a pending investigation or related action.

The division may also take into account:

• Whether the co-operation was truthful, specific, complete and reliable
• Whether the co-operation was voluntary or required by the terms of an agreement with another law enforcement or regulatory organization
• Any unique hardships resulting from, or unique circumstances of, the individual’s co-operation
• The quality of the individual’s co-operation, including whether the individual provided continuing, extensive and timely co-operation and assistance
• Providing key non-privileged information, particularly if the information was not requested and otherwise might not have been discovered
• Explaining transactions, interpreting key information or identifying new and productive lines of inquiry.

Among other things, the division may assess an individual’s culpability in connection with the misconduct, including his or her role in the misconduct; the number and duration of instances of misconduct; the individual’s education, training, experience and position of responsibility; the extent to which the individual benefitted, financially or otherwise, from the misconduct; the type and egregiousness of any misconduct by the individual; the level of intent; and whether the individual undermined the integrity or effectiveness of a compliance or reporting system – such as by interfering with a company’s legal, compliance or audit procedures.

Even if an individual can demonstrate that he or she deserves credit for co-operation, certain actions by that individual or his/her counsel may limit or offset this, officials write. For example, they say, if an individual, while purporting to co-operate or taking certain co-operative steps, engages in conduct that impedes an investigation or inappropriately consumes government resources, the division may conclude that the individual’s conduct does not warrant credit.

Such unco-operative conduct might include:

• Failing to respond to requests and subpoenas for documentary information and testimony in a complete and timely manner
• Claiming that information is not available when it is
• Failing to preserve relevant information under the individual’s appropriate control
• Misrepresenting or minimizing the nature or extent of the individual’s misconduct
• Providing specious explanations for instances of misconduct that are uncovered
• Advising or directing others not to assist and co-operate with the division
• Engaging in evasive, misleading or obstructive conduct during investigative testimony or interviews.

COMPANIES
The CFTC’s advisory for companies covers many of the same factors, but is more detailed and includes additional items in certain areas. For example, the agency takes into account whether a company encouraged high-quality co-operation from all its directors, officers and employees, including their provision of complete and truthful sworn statements and testimony during the investigation or in any related enforcement litigation or proceeding.

In terms of the quality of a company’s co-operation, the division will look at the extent that it independently investigated the misconduct, and whether the investigation was conducted meaningfully, in good faith and in a manner designed to uncover all relevant facts, such as by using an independent entity where appropriate and seeking to identify all responsible individuals.

Companies are also assessed in terms of remediation to prevent future wrongdoing. For example, the division will look at whether the company:

• Took immediate steps to address the misconduct and implement an effective response to it
• Provided sufficient, credible assurances to the division that the conduct is unlikely to recur
• Implemented additional internal controls, procedures and oversight
• Provided an explanation of how such additional measures would have addressed the specific misconduct at issue, had they been in place at the time.