On May 20, 2020, the Commodity Futures Trading Commission (“CFTC”) announced that the Division of Enforcement had issued new guidance regarding the factors that it would consider when making recommendations to the CFTC on the amounts of civil monetary penalties in CFTC enforcement actions. The binding guidance, which has been incorporated into the CFTC Enforcement Manual, states that the Division of Enforcement staff will be guided by the overarching consideration of ensuring that any proposed penalty achieves the dual goals of specific and general deterrence. And it provides a three-pronged approach to evaluate the appropriate penalty to recommend to the CFTC: (1) the “gravity of the violation;” (2) “mitigating and aggravating circumstances;” and (3) “other considerations.” While not likely to result in any significant shift in CFTC penalty amounts, having written public guidance should make it easier for defense counsel to engage in transparent and productive negotiations with Enforcement Division staff as to how various cases should be viewed.
First, and unsurprisingly, the new guidelines provide that the gravity of the violation is the primary consideration in determining the appropriate civil monetary penalty. This consideration is informed by the nature and scope of the violations, the intentionality or willfulness of the conduct and the actor’s state of mind, and the nature and scope of any consequences resulting from the actions, including the harm or risk of harm to victims and market participants, any benefit or potential benefit received by the actor, and the impact on market integrity.
Second, the guidance re-affirms the CFTC’s commitment to consider mitigating and aggravating factors, which include the following: post-violation conduct; self-reporting, cooperation, and remediation; the timeliness of remediation; the existence and effectiveness of a compliance program; prior misconduct and the pervasiveness of any prior misconduct; and any disciplinary action taken by the company in response to individual misconduct.
Third, the guidance also confirms the CFTC’s willingness to evaluate “other considerations,” which may include monetary and non-monetary relief in analogous cases and the conservation of CFTC resources. Additionally, under the guidance, the CFTC may consider the total mix of remedies and monetary relief to be imposed on the actor, in addition to any remedies or relief that may be imposed in parallel cases, including criminal cases or actions brought by other regulatory entities.
The guidance does not provide any specific benchmarks or presumptive penalty amounts for various situations, in contrast to the United States Sentencing Commission Guidelines. Instead, the guidelines maintain the CFTC’s full flexibility in individual cases. At the same time, by providing a more specific framework for evaluation, it is likely that the guidance will lead to an increase in transparency and consistency over time. Indeed, in announcing the updated guidance, the CFTC’s Chairman, Heath P. Tarbert, focused on these goals by stating that the guidance reflected his “strong commitment to transparency and to the CFTC’s enforcement mission.”