The Commodity Futures Trading Commission (CFTC or the Commission) released its enforcement results for fiscal year 2022 on October 20, 2022. The enforcement results detail the 82 enforcement actions the CFTC filed in 2022 and show that orders secured by the Commission imposed more than $2.5 billion in restitution, disgorgement, and civil monetary penalties, either through settlement or litigation.
CFTC Chairman Rostin Behnam highlighted the CFTC’s continued commitment to a robust enforcement program to ensure the markets overseen by the CFTC are open, transparent, fair, and competitive. The enforcement results indicate that the CFTC has continued to focus much of its attention on new digital commodity asset markets. Eighteen of the 82 enforcement actions brought in 2022 involved conduct related to digital assets.
Many enforcement actions the CFTC brought in 2022 involved activity in certain energy markets or resulted in findings that are relevant to those who transact in or otherwise participate in the energy markets. For example, several enforcement actions alleged manipulative conduct, fraud, inadequate supervision, and reporting and recordkeeping violations.
Manipulation
In May 2022, the CFTC filed and settled charges against an energy and commodities trading firm for manipulative and deceptive conduct in the United States and global oil markets from at least 2007 to 2018. The CFTC found that the trading firm sought to increase profits from its physical and derivatives oil products trading by manipulating or attempting to manipulate US price-assessment benchmarks relating to physical fuel oil products and related futures and swaps to benefit its trading positions.
To resolve the enforcement action, the firm paid $1.186 billion, which consisted of the highest civil monetary penalties ($865.6 million) and the highest disgorgement amount ($320.7 million) of any CFTC case. The Fraud Section of the US Department of Justice’s Criminal Division also instituted two separate criminal actions against the firm.
Spoofing
The CFTC brought several actions involving “spoofing” (i.e., bidding or offering with the intent to cancel the bid/offer prior to execution) in various markets, including those for Chicago Mercantile Exchange Natural Gas and Reformulated Blendstock for Oxygenate Blending Gasoline futures.
The CFTC filed and settled charges against several individuals and a proprietary trading firm for multiple instances of spoofing and engaging in manipulative and deceptive conduct. In addition to paying civil monetary penalties, the individuals were subject to multi-month suspensions from trading on or subject to the rules of any CFTC-designated exchange and all other CFTC-registered entities and in all commodity interests.
Recordkeeping and Supervision
The CFTC filed and settled charges against various swap dealer and futures commission merchant (FCM) affiliates of financial institutions for failing to maintain, preserve, or produce records that were required to be kept under the CFTC’s recordkeeping requirements and failing to diligently supervise matters related to their businesses. The orders found that the swap dealer and/or FCM in question had for years failed to stop its employees, including those at senior levels, from communicating both internally and externally through unapproved communication methods including personal text messaging, personal email, and other instant messaging applications, and imposed a total of $796 million in civil monetary penalties.
The US Securities and Exchange Commission also entered orders filing and settling charges and imposing civil monetary penalties against several of the financial institutions for related violations of recordkeeping and supervision requirements.
Other Actions
The CFTC’s other enforcement actions involved misappropriation of material nonpublic information, swaps reporting violations, and various violations by registered entities. The CFTC has continued its emphasis on coordination and parallel actions with criminal authorities and regulatory partners, domestic and international, to protect markets, participants, and customers.
In addition, the CFTC has continued to use specialized Department of Enforcement task forces in complex and developing program areas to ensure consistency, identify best practices, and develop new approaches and ideas based on lessons learned. These task forces focus on the following areas:
- Spoofing and Manipulative Trading
- Digital Assets
- Insider Trading and Protection of Confidential Information
- The Bank Secrecy Act
- Swaps
- Corruption
- Romance Scams
We expect the CFTC will continue to aggressively investigate and pursue enforcement actions in the coming year to protect customers and ensure market integrity. As Chairman Behnam noted, unprecedented financial market conditions, emerging technological disruption, and growing retail investor participation will require the CFTC to remain committed to a robust enforcement program.
Companies transacting energy commodities that are subject to the CFTC’s jurisdiction should remain vigilant in their oversight and review of their market and trading activities.
Law clerk Timothy Birchfield contributed to this blog post.