Overview
The CFTC's Division of Enforcement has issued new guidance outlining factors it considers in recommending civil monetary penalties to the Commission in enforcement proceedings (CMP Guidance). The CMP Guidance is the first public update from the Division since it issued its Penalty Guidelines in 1994 and, like the public release of the Division's Enforcement Manual in May 2019,[1] is part of a larger effort to increase the transparency of the CFTC's enforcement process.[2] The guidance will provide a useful tool for respondents to evaluate potential liability and proposed penalties, especially in settlement discussions with the Division.
The Division states that it seeks "to be tough on those who break the rules while striving for fair and consistent outcomes" and that it will consider three factors in recommending a penalty to the Commission: (1) the gravity of the violation; (2) any mitigating and aggravating circumstances; and (3) other considerations, such as penalties in analogous cases. The CMP Guidance enumerates relevant circumstances for each of these factors.
- To evaluate the gravity of the violation the Division will consider circumstances including:
a. the nature and scope of the violation (e.g., number and duration of violations, respondent's and other's role, efforts to conceal the violation, and harm to victims);
b. the respondent's state of mind (i.e., was the conduct intentional or willful); and
c. the nature and scope of any consequences from the violation (harm or risk of harm to victims, market participants, and market integrity and benefits or potential benefits to the respondent).
- To evaluate the mitigating and aggravating circumstances the Division will consider circumstances including:
a. any post-violation mitigating or aggravating conduct;
b. whether the respondent self-reported the misconduct, cooperated with the investigation, or remediated the conduct (and the timeliness of such remediation);
c. the company's pre-existing compliance program and prior misconduct; and
d. the pervasiveness of misconduct within the company and nature of any disciplinary action taken by the company with respect to the individuals engaged in misconduct.
- Other considerations the Division will evaluate:
a. the total mix of remedies and monetary relief to be imposed on the respondent considering parallel criminal and civil investigations;
b. the monetary and non-monetary relief in analogous cases; and
c. the conservation of Commission resources, including timely settlement.
None of these factors should surprise CFTC practitioners, as they have previously been considered by the Division to formulate penalties and discussed in the Commission’s enforcement orders. However, the CMP Guidance provides "illustrative" considerations applicable to evaluating each factor which will be useful to both sides in framing the issues relating to penalties. The CMP Guidance may also help foster transparency and consistency among future cases; sometimes in the past, rationalizing different penalties for the same violations among different cases has been a challenge.
Notably, the CMP Guidance does not replace the Commission's 1994 Penalty Guidelines and, in contrast to the Department of Justice criminal penalty guidelines and the Federal Energy Regulatory Commission civil penalty guidelines, does not provide any formula for calculating a penalty.[3] The CMP Guidance makes clear in this regard that each of the factors discussed above "may be more or less relevant to the facts and circumstances of a particular matter and the type of violation at issue" and "[i]n applying the factors identified . . . staff will be guided by the overarching consideration of ensuring the proposed penalty achieves the dual goals of specific and general deterrence." Each side thus remains free to advocate for how the factors should be weighed in each case, and respondents will be challenged to rationalize proposed penalties with behavior and factors that can be gleaned from prior penalties in order to ensure the "fair and consistent outcomes" promised.
Please contact Steptoe's CFTC enforcement team with any questions about the CMP Guidance or any compliance or enforcement issues.
[1] The penalty guidance has been incorporated into an updated version of the Division's Enforcement Manual available here.
[2] See CFTC Division of Enforcement Issues Civil Monetary Penalty Guidance, CFTC News Release No. 8165-20 (May 20, 2020).
[3] Indeed, the CMP Guidance is more akin to FERC's pre-civil penalty guidelines approach to provide "firm but fair enforcement" based on factors similar to those enumerated in the CMP Guidance. See Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068, PP 1, 17-27 (2005).
