On May 20, the Commodity Futures Trading Commission’s (CFTC’s) Division of Enforcement issued new public guidance on civil monetary penalties that is designed to increase transparency in penalty determinations. Under the new guidance — the first guidance since 1994 — CFTC Staff are instructed to employ a three-pronged approach to determine the penalty to be recommended to the CFTC: (1) the “gravity of the violation”; (2) “mitigating and aggravating circumstances”; and (3) “other considerations.” According to the CFTC, each of the factors “may be more or less relevant” depending on the facts and circumstances of the matter and the type of violation that is at issue. In addition, Staff members are instructed to take into account the goals of specific and general deterrence when determining the proper penalty that they will be recommending.
The Division’s Enforcement Manual identifies a list of factors that Staff should consider when analyzing each of the three prongs. For example, in assessing the gravity of the violation, the Staff should analyze the nature and scope of the violations, such as the number and duration of the violations and the respondent’s role in the violations. The Staff also should consider the respondent’s state of mind, including whether the conduct was intentional, and the nature and scope of any consequences flowing from the violations, such as the harm to any victims.
To evaluate relevant mitigating and aggravating circumstances, the Staff is instructed to analyze the respondent’s post-violation conduct, including any remediation efforts. The Staff also should consider whether the respondent self-reported the misconduct and any prior misconduct by the respondent. Conditions at the respondent’s company also should be taken into account. More specifically, the Staff should consider the existence and effectiveness of the company’s preexisting compliance program, the pervasiveness of misconduct within the company, and the nature of any disciplinary action taken by the company with respect to the individuals engaged in the misconduct at issue.
Lastly, the Division’s Staff members are instructed to evaluate other considerations, including but not limited to the total mix of remedies and monetary relief that will be imposed on the respondent, the relief ordered in similar cases, and the conservation of CFTC resources, including timely settlement. The Staff also may consider any remedies that will be imposed in parallel criminal cases or cases brought by other regulatory or law enforcement entities.
Importantly, the CFTC’s new guidance reflects a different approach to penalties from that taken by the Securities and Exchange Commission (SEC). Unlike the CFTC’s explicit guidelines, there is less transparency surrounding SEC money penalties, and it is therefore necessary to analyze prior SEC enforcement actions to determine why penalty amounts are what they are in any given case. Though the CFTC’s new guidance does not provide additional detail regarding the amount of potential monetary penalties, the factors outlined in its three-pronged approach to penalties will greatly assist respondents and their counsel in developing a strategy to minimize the amount of any potential penalty.
