On October 17, 2023, the CFTC’s Division of Enforcement (the “Division”) released an Advisory providing guidance that increased the likelihood that a respondent would need to admit to facts stated in a settlement, further clarified how the Division assesses the potential size of a civil monetary penalty, and provided guidance for when the Division might seek to impose a compliance Monitor or Consultant in connection with a settlement.[1] Although much of the Advisory memorializes trends in Division practices, the push for more respondents to admit to the facts in a settlement may tip the balance regarding whether a respondent decides to settle or litigate a matter. In particular, the Advisory does not address the fact that admissions in a settlement order may result in private rights of action under Section 22 of the Commodity Exchange Act. Such exposure may disincentivize settlements generally.
The Division will consider a non-exhaustive list of factors to determine whether admissions are appropriate
In the past, respondents entering into settlements with the Division would do so without admitting to or denying any of the facts or conclusions discussed therein. Under the newly issued guidance, “respondents should no longer assume that no-admit, no-deny resolutions are the default.”[2] Instead, the Advisory indicates that the Division will weigh various factors, as well as the relevant facts and circumstances, in deciding whether an admission is appropriate. These factors are not dispositive, and the examples provided in the Advisory are non-exhaustive.
Factors that weigh in favor of requiring an admission include whether:
- There is a parallel criminal resolution where the respondent has admitted to the underlying misconduct;
- The evidence uncovered during the investigation conclusively establishes the misconduct;
- A respondent hopes to receive cooperation credit from the Division. When assessing the extent of a respondent’s cooperation, the Division may consider whether the respondent admits to wrongdoing; and
- The offense is a strict liability offense in clear violation of the law where the respondent’s state of mind is irrelevant.
Factors that weigh against requiring an admission include whether:
- Admitting to the misconduct might open up the respondent to criminal liability and jeopardize the respondent’s ability to defend themselves in a criminal case; and
- A legitimate factual dispute exists where the Division faces litigation risk in establishing the fact at trial. This factor counsels against admissions only as to that disputed fact.[3]
The Division may increase penalties to avoid recidivism
The Division will heavily weigh the presence of recidivism in recommending penalties. Specifically, where the Division observes multiple instances of “similarly situated respondents violating similar laws in similar ways over time,” the Division may assess higher penalties than those imposed in the past.[4] Factors that the Division will consider in determining whether a person is a recidivist include:
- Whether the prior and current actions involve the same general subject matter;
- The length of time between offenses;
- Whether overlapping management was involved;
- The pervasiveness of the new misconduct. For example, de minimis new misconduct that is quickly identified and remediated is less likely to result in a recidivism finding than pervasive new misconduct that persists over time; and
- The robustness and effectiveness of remediation, if any, taken and maintained since the prior resolution.[5]
The Division may impose a corporate compliance Monitor or Consultant to rectify misconduct
The Advisory states that the Division will continue to recommend the imposition of both Monitors and Consultants when appropriate. The Division may seek to require a Monitor in cases where the misconduct is severe and the Division lacks confidence that the entity will be able to effect full remediation on its own. The Willkie team has experience with navigating the CFTC’s expectations of a Monitorship.
The duties of a Monitor include:
- Testing the sufficiency of the entity’s policies, procedures, and controls to identify, address, and prevent future misconduct like that described in the order;
- Drafting specific recommendations to address issues identified during testing; and
- Testing the sufficiency of the entity’s enhancements to its policies, procedures, and controls to implement the Monitor’s recommendations and the effectiveness of those enhancements over time.[6]
The Division may seek to impose a Consultant if the Division believes that there is sufficient evidence that the entity requires assistance, but that the entity should be able to remediate its misconduct without close oversight. The Consultant will “advise the entity regarding the implementation of remediation-related undertakings.”[7]
Conclusion
Though much of the Advisory reflects standing Division practices, the changes regarding admissions of wrongdoing represent a significant departure. Commissioner Christy Goldsmith Romero issued a statement in support of the Advisory, and in particular praised the Division “for end[ing] the routine use of neither-admit-nor-deny settlements.” [8] The Division’s insistence that respondents admit to the facts in a proposed settlement may change the calculus on a decision to settle a matter, compared to litigating the issues in court.
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[1] Commodity Futures Trading Commission, Advisory Regarding Penalties, Monitors and Consultants, and Admissions in CFTC Enforcement Actions (Oct. 17, 2023) (the “Advisory”), available here.
[2] Advisory at 5.
[3] Id. at 6.
[4] Id. at 2.
[5] Id. at 2-3.
[6] Id. at 4.
[7] Id.
[8] Statement of Commissioner Christy Goldsmith Romero on CFTC Enforcement Division Advisory Regarding Penalties, Monitors and Consultants, and Admissions (October 17, 2023), available here.
