Commodities 
Frauds

Back To  SECURITIES & COMMODITIES FRAUD

The Commodity Futures Trading Commission (CFTC) regulates the derivatives markets, enforcing the Commodity Exchange Act (CEA) to foster “open, transparent, competitive, and financially sound markets,” as well as to avoid systemic risk and protect market participants.

Derivatives markets initially focused on futures contracts in agricultural commodities (such as wheat, corn, and cotton), metals (such as copper, gold, and silver), and fuels (like crude oil, heating oil, and gasoline). Today, the CFTC focuses on markets in complex financial instruments, which include futures, options, and swaps related to stock and interest-rate indices, foreign currencies, digital or virtual currencies, and more.

Who does the CFTC regulate?

The CFTC regulates trading organizations, such as the exchanges that host futures trading (known as designated contract markets); swap execution facilities, which are platforms that allow participants to buy and sell swaps; derivatives clearing organizations, such as the Options Clearing Corporation; and swap data repositories, which are centralized facilities for swap data reporting and recordkeeping.

The CFTC also regulates all “intermediaries” that act as agents for other people who deal with derivatives. The most common intermediaries include:

  • commodity pool operators (CPOs), which are money managers or investment funds that oversee investor contributions made in commodities securities; 

  • commodity trading advisors who provide commodity and futures markets investment advice; 

  • futures commission merchants (FCMs), which take orders to purchase or sell any commodity for future delivery; 

  • introducing brokers, which have direct relationships with clients, but delegate trade execution to FCMs; and 

  • swap dealers, which make markets in swaps or enter into swaps contracts with counterparties.

What kinds of commodities frauds can whistleblowers report?

The CFTC investigates and prosecutes violations of the CEA and CFTC regulations. Potential violations include fraud, false statements or reporting, disruptive trading practices, misappropriation, use of manipulative or deceptive devices, price manipulation, accounting violations, failure to maintain required records or make required reports, and failure to supervise or comply with business conduct standards.  The CFTC also oversees the compliance of certain regulated entities (futures commission merchants and introducing brokers) with the anti-money laundering requirements of the Bank Secrecy Act.

Digital Assets
: The CFTC is one of the leading enforcement agencies in the cryptocurrency and digital asset space. In 2023, the agency brought 47 actions involving conduct related to digital asset commodities. The CFTC has charged cryptocurrency exchanges, such as FTX and Binance, with misappropriating and illegally offering digital asset derivatives to U.S. customers and willfully evading commodities laws. It similarly charged Celsius and its former CEO with fraud and material misrepresentations in connection with a commodity pool scheme involving digital asset commodities. The CFTC also obtained an order requiring South African crypto company Mirror Trading and associated executives to pay the highest monetary penalty the CFTC has ever ordered ($1.73 billion), related to fraudulent conduct in connection with retail foreign currency transactions and unlawfully acting as a commodity pool operator.

Manipulative and Deceptive Conduct
: The CFTC is heavily focused on prosecuting fraud, manipulation, spoofing, or other forms of disruptive trading. The CFTC has charged regulated entities with engaging in manipulative and deceptive trading practices that include:

  • spoofing, where traders place large buy or sell orders with the intent to cancel them before execution, creating a false impression of market demand or supply;

  • wash trading, a form of market manipulation where buy and sell orders are placed simultaneously to artificially inflate trading volume;

  • misleading investors about the risks associated with certain investments, leading to financial losses;

  • manipulating benchmark interest rates, where traders collude to artificially inflate or deflate rates for personal gain;

  • front-running, where traders exploit non-public information for personal gain;

  • providing false information to the CFTC; and

  • failing to maintain adequate supervisory systems and controls to ensure customer trading is not disruptive.

In addition, the CFTC has brought numerous cases against companies that use fraudulent and deceptive practices in the sale of precious metals, such as gold and silver, and also has jurisdiction over similar fraud schemes impacting carbon trading markets.

Reporting, Risk Management, Adequate Compliance Programs and Business Practices
: The CFTC prosecutes regulated entities’ non-compliance with recordkeeping and reporting requirements; implementation of proper risk management processes; maintenance of adequate compliance programs; and engagement with appropriate business practices. The CFTC has fined swap dealers for failing to accurately report swap data and failing to retain certain files; charged registered derivatives clearing organizations with failing to identify operational risks and mitigate those risks using appropriate systems, policies, procedures, and controls; and found liable swaps dealer and futures commission merchants for failing to stop employees from communicating both internally and externally using unapproved communication methods.

Who can blow the whistle on commodities frauds?

Almost anyone with information about a violation of the laws and regulations the CFTC enforces can file a whistleblower tip. Even employees in senior roles and with compliance functions are eligible to submit tips in most cases. But you do not need to be an employee of the company engaging in misconduct to qualify as a whistleblower. Read more about the specific requirements of the CFTC Whistleblower Program on our CFTC Whistleblower Program FAQ page.

How does the CFTC help to protect whistleblowers?

The CFTC is generally required to maintain the confidentiality of whistleblowers, and typically, the CFTC is able keep the identity of the whistleblower confidential throughout its investigation. Whistleblowers may also submit information to the CFTC anonymously, as long as an attorney represents them. The Dodd-Frank Act also protects CFTC whistleblowers from employer retaliation, including firing, demoting, suspending, threatening, harassing, or discriminating against whistleblowers who provide information to or assist the CFTC. Whistleblowers who are retaliated against for their whistleblowing may sue for reinstatement, back pay, and other damages. These protections apply whether or not a whistleblower receives an award, as long as the whistleblower had a reasonable belief that a violation of CFTC laws or regulations occurred or would soon occur. The CFTC may also bring enforcement actions against companies that attempt to stop whistleblowers from reporting misconduct.

Whistleblower Partners are experienced commodities fraud attorneys

Whistleblower Partners has handled a wide variety of whistleblower cases involving commodities frauds. Those cases include cryptocurrency scams, violations of the CFTC’s swaps regulations, benchmark manipulation, and money laundering.

These descriptions of commodities frauds are general in nature and do not constitute legal advice. Commodities violations are complex and ever-evolving. The attorneys at Whistleblower Partners understand the complicated, constantly changing legal landscape and are happy to discuss any potential matter further.

If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.