The U.S. Commodity Futures Trading Commission (“CFTC”) Division of Enforcement (“Division”) recently issued new guidance on factors it will consider when recommending civil monetary penalties in CFTC enforcement actions. Under the new guidance, the Division will take a three-pronged approach to its evaluation of civil monetary penalties by looking at (i) the gravity of the violation, (ii) mitigating and aggravating circumstances, and (iii) other considerations, such as the total mix of remedies and monetary relief, among others. Following a long hiatus from its 1994 guidance, the CFTC’s new guidance tracks its goal of affording market participants greater transparency in its approach to assessing civil monetary penalties in enforcement actions.
Gravity of the Violation
The CFTC primarily considers the gravity of the violation at issue in determining an appropriate penalty. In weighing the gravity of the violation, Division staff may look to the following factors, which are illustrative of the analysis in most cases:
- Nature and scope of the violations, including:
- The number, duration, type and degree of the violations;
- The Respondent’s role in the violations;
- Whether the Respondent acted in concert with others;
- Any efforts to conceal the ongoing violations;
- Whether the violations resulted in harm to victims and, if so, the number and type of victims;
- The Respondent’s state of mind, including whether the conduct was intentional or willful; and
- Nature and scope of any consequences flowing from the violations, including:
- Harm (or risk of harm) to victims and market participants;
- Benefit or potential benefit to the Respondent; and
- Impact on market integrity, customer protection, or the mission and priorities of the Commission in implementing the purposes of the Commodity Exchange Act.
Mitigating and Aggravating Circumstances
In weighing mitigating and aggravating circumstances when determining the appropriate civil monetary penalty, the CFTC will look at:
- The Respondent’s post-violation conduct, including:
- Any mitigating conduct, such as attempts to cure, return of victim funds, or efforts to improve a compliance program; and
- Aggravating conduct, such as concealment or obstruction of an ongoing investigation;
- Whether the Respondent self-reported the misconduct, as well as the extent of cooperation and remediation;
- Timeliness of remediation;
- The existence and effectiveness of the company’s compliance program;
- Prior misconduct, such as whether the Respondent is a recidivist;
- Pervasiveness of misconduct within the company, including involvement of management; and
- Nature of any internal disciplinary action taken by the company against individuals engaged in the misconduct.
Other Considerations
Finally, the Division may take other considerations in making its recommendation of an appropriate civil monetary penalty, which may include:
- The total mix of remedies and monetary relief to be imposed in the action, in addition to remedies and relief to be imposed in parallel cases involving criminal authorities (which may include incarceration), and other agencies (such as the SEC);
- Monetary and non-monetary relief in analogous cases, if any; and
- Conservation of CFTC resources, including the possibility of timely settlement.
Implications of the new Guidance
While not a significant shift in the CFTC’s approach to assessing penalties, the new guidance does provide some transparency and clarity to the market on how the CFTC’s analysis will be framed in future enforcement actions. Companies and their counsel can also look to these factors when advocating for the imposition of an appropriate remedy in their negotiations with the CFTC.
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