Commodity Futures Financial Fraud Cases

On July 21, 2010, President Obama signed in to law H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill, in part, is meant to encourage whistleblowers to step forward in response to fraud within the U.S. Financial Sector. Section 748 of the Act amends the Commodity Exchange Act to create significant incentives, assurances of confidentiality, and employment protections for those reporting violations to the U.S. Commodity Futures Trading Commission (CFTC).

The CFTC is now authorized to pay an award to any whistleblower who supplies relevant information to the agency which results in any monetary sanction exceeding $1,000,000. This includes fraud which occurs prior to the enactment of the Dodd-Frank Act. The Act requires the Agency maintain the whistleblower’s confidentiality while the investigation is underway. Any award would be paid out of a newly created fund, the Commodity Futures Trading Commission Customer Protection Fund. The fund could not exceed $100 million dollars, and would also be used to educate the public about avoiding financial fraud. The award ranges between 10 and 30 percent of the monetary sanctions or settlement. While this exact percentage is left to the discretion of the agency, the law does provide several factors for the CFTC to take into consideration, such as the importance of the information provided by the whistleblower, the assistance provided by the whistleblower and his or her attorneys, and the degree to which the award may prevent future fraud. As an added protection, the whistleblower may appeal his or her award to a federal appeals court. To receive an award, the whistleblower must provide information previously unknown in the public domain unless the whistleblower was the source of the information. Lastly, the whistleblower must not be convicted of any criminal violations arising from their involvement in the alleged fraud, nor have learned of the information through his or her governmental duties, nor through his or her employment or affiliation with an entity or association registered with the CFTC. The CFTC will not provide an award to a whistleblower who intentionally provides false information.

While the new law does not permit the whistleblower to initiate a fraud case on behalf of the CFTC, the whistleblower may bring a case against his or her employer if it retaliates against the whistleblower for communicating with the CFTC or participating in an investigation or proceeding. This includes job termination, demotion, direct or indirect threats, or any discrimination in the employer’s terms or condition. If found guilty of retaliation, the employer would be required to return the whistleblower to his or her equivalent position, provide any back pay plus interest, and any damages suffered as a result of the retaliation, including the whistleblower’s court, expert, and attorney fees. In such cases, the whistleblower is not bound by any employment or arbitration agreements if they conflict with this Act. The whistleblower must bring any claim for retaliation within two years of the retaliatory act. Unlike similar provisions in the Sarbanes-Oxley Act, the whistleblower is not required to proceed through all his or her administrative remedies before filing a retaliation claim in federal court.

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You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.