1. Cooperation Credit

The CFTC’s Division of Enforcement (Division) has published guidance that outlines how individuals and companies that are the subject of an investigation can earn credit for cooperation during the course of an investigation.  The primary benefit to earning cooperation credit is that depending on the scope of cooperation, the Division may recommend that the CFTC take no enforcement action or recommend reduced charges or sanctions in connection with an enforcement matter. 

Companies and individuals should keep in mind that earning cooperation credit has a tendency to be a subjective process.  That is, the decision to recognize cooperation credit can vary depending upon how a specific Division attorney evaluates the facts of a given matter, including the steps an individual or company took to cooperate with the investigation.  Although the Division’s guidance was designed to promote uniformity for when and how the Division recognizes cooperation credit, the specific factors used to recognize cooperation are qualitative in nature.  As a result, the application of the factors often varies depending upon the subjective assessment of a Division attorney assigned to the matter.

Furthermore, the Division sets a high bar to earn cooperation credit.  Per its January 2017 guidance:“[t]he Division looks for more than ordinary cooperation or mere compliance with the requirements of law.  In particular, the Division looks to what a company [or an individual] voluntarily does, beyond what it is required to do.  Recognition for cooperation is most likely to be given to a company [or an individual] for conduct that is sincere, robustly cooperative, and indicative of a willingness to accept responsibility for the misconduct, where appropriate.”  The Division applies the factors outlined below when assessing cooperation.  For a more detailed summary of the Division’s cooperation factors, please click here to review Willkie’s client memorandum on this topic. 

• The value of the cooperation to the Division’s investigation or enforcement action.This factor includes an assessment of, among other facts, whether the cooperation resulted in material assistance to the investigation, the timeliness of the initial cooperation, whether the cooperation was reliable, and whether the cooperation was ongoing.
• The value of the cooperation to the CFTC’s broader enforcement interests.This factor includes an assessment of, among other facts, the degree to which cooperation credit encourages high-quality cooperation from others, whether the enforcement action represents a priority for the CFTC, and whether the cooperation conserved Division resources.
• Balancing culpability and the history of prior misconduct with the acceptance of responsibility, mitigation, and remediation.For this factor, the Division analyzes the extent to which any efforts to mitigate and remediate issues outweigh the history of the prior misconduct.

In addition to outlining cooperative conduct, the Division also provides examples of non-cooperative conduct such as (amongst others) failing to respond to a subpoena or request for information, withholding or misrepresenting information, claiming information is not available when it is available, and failing to preserve relevant information under the company’s control. 

2. Self-Reporting

A company or individual can earn cooperation credit for self-reporting violations to the CFTC’s Division of Enforcement (Division).  According to the Division, an individual or company can earn a “substantial” reduction in potential penalties for self-reporting a violation to the Division.  As a result, the Division’s guidance on earning cooperation credit should be read in conjunction with a discussion of earning cooperation credit for self-reporting.  Per the Division, in order to receive “the most substantial reduction in a civil monetary penalty,” the Division expects a company to self-report the potential violation, fully cooperate with the Division’s investigation, and undertake timely and sufficient remedial measures.

To receive cooperation credit for self-reporting a potential violation, the Division requires that the self-report occur prior to an imminent threat of exposure of the misconduct, be made within a reasonably prompt time after discovery of the misconduct, and include all relevant facts that are known at the time of the self-report. 

When the Division receives a self-report, it is important to keep in mind that the Division will not recommend an enforcement action resulting from the self-report only under “extraordinary circumstances.”  One example of an extraordinary circumstance would be misconduct that is pervasive throughout the industry and the company is the first to report the misconduct.  The fact that a self-report oftentimes results in a Division investigation and enforcement action means that individuals and companies should carefully consider any decision to self-report a potential violation to the Division.