CFTC Issues Revised Guidance on Cooperation in Enforcement

In an Advisory, the CFTC Division of Enforcement detailed how it evaluates self-reporting, cooperation and remediation when recommending penalties in enforcement actions.

The CFTC stated that "this marks the first time the Division will use a matrix to determine the appropriate mitigation credit to apply."

The new Advisory replaces all prior guidance, though the Division stated that it "maintains the discretion to consider the unique facts and circumstances in every case, and may also consider a variety of other factors in formulating recommendations to the Commission."

The Advisory describes tiered systems to evaluate self-reporting and cooperation, assigning "Mitigation Credit" based on the quality of a firm's engagement with the Division:

• Self-Reporting will be assessed on a three-tier scale—No Self-Report, Satisfactory Self-Report, or Exemplary Self-Report—and will be based on voluntariness, timeliness, completeness and disclosure to the appropriate division.
• Cooperation will be ranked on a four-tier scale—No Cooperation, Satisfactory Cooperation, Excellent Cooperation, or Exemplary Cooperation—and will be evaluated based on factors such as voluntary production of evidence, internal investigations and proactive engagement.
• Remediation will include corrective actions, internal policy changes and accountability measures.

The Division provided a "Mitigation Credit Matrix" outlining presumptive penalty reductions based on self-reporting and cooperation levels, with potential discounts ranging from 10% to 55%. The CFTC said that disgorgement and restitution will not qualify for Mitigation Credit. The Division noted that in extraordinary cases, where a firm is the first to disclose widespread fraud or manipulation and provides exemplary cooperation, the Division may recommend a public declination of enforcement action.

The Division also clarified that certain actions may limit or eliminate cooperation credit, including: (i) failing to self-report known violations involving fraud, manipulation, or customer harm; (ii) providing incomplete or misleading information during an investigation; and (iii) taking steps to obstruct or delay the Division's efforts (e.g. untimely subpoena compliance or bad-faith document production).

Commissioner Kristin N. Johnson said she was "unable to support the [Advisory]." She stated: "We must exercise caution when advancing new reporting, cooperation, and remediation regimes or rescinding long-standing guidance. Any effort to adopt new reporting processes, particularly processes that require inter-division guidelines and infrastructure, must be consistent with the mandates of our statue and regulation."