I respectfully concur on the Commission’s [1] enforcement action settling charges against Trafigura Trading LLC (“Trafigura”). But I cannot fully support it because once again, we are falling victim to regulating by enforcement, this time through a first-of-its-kind-charge under Regulation 165.19(b) of the Commission’s Whistleblower Rules. While I am a strong proponent of our whistleblower program, the Commission’s decision to bring this specific charge is inconsistent with the regulation’s text and prior Commission statements regarding the regulation’s intent.

Silence is Golden…And Now Illegal

Seven years after the Commission adopted Regulation 165.19(b), today’s settlement embraces a new interpretation, empowering the Commission to line-item edit non-disclosure agreements (“NDAs”).

The Commission’s Order finds Trafigura violated Regulation 165.19(b) by requiring employees to sign agreements that contained broad non-disclosure provisions that prohibited sharing Trafigura’s confidential information with third parties. The Commission is taking issue with the agreement’s lack of “carve-out language that would have expressly permitted sharing information with the Commission or law enforcement.”[2] And it is the lack of these very specific words – words that the Commission has never required before or even identified previously – that underpins this violation.

Not only am I concerned that the Commission is taking this position as to words not included in an NDA without any previous public notice or communication, I also question the Commission’s interpretation of the regulation. Specifically, I disagree with the Commission: (1) ignoring the regulatory definition of the word “action” that is used in Regulation 165.19(b) as well as the common understanding of the meaning of that word; (2) failing to point to an affirmative duty to include carveout language; and (3) disregarding statements in the proposed rulemaking release issued by the Commission when it adopted Regulation 165.19(b).

Defining Inaction as Action

Section 23 of the Commodity Exchange Act (“CEA”)[3] authorizes the CFTC to establish a comprehensive whistleblower program and to protect certain parties who provide information to the Commission or who assist in an investigation or an administrative or judicial action related to such information. As relevant here, the statute prohibits waiver of a whistleblower’s rights and remedies.

Regulation 165.19(b) is part of the Commission’s implementation of the CEA’s whistleblower provisions, and states: “No person may take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications.”[4]

A foundational defect in the finding that Trafigura violated this regulation is the failure to identify an “action” satisfying the definition of that word in Regulation 165.2, which applies to all the Whistleblower Rules. As defined in Regulation 165.2, “action” “generally means a single captioned judicial or administrative proceeding.”[5]

Applying the definition of the word “action” as defined in Regulation 165.2 to the use of the word in Regulation 165.19(b) limits the scope of the prohibition in the latter to enforcement through a judicial or administrative proceeding. This construction is consistent with the clause at the end of Regulation 165.19(b) that speaks to “enforcing, or threatening to enforce,” a confidentiality agreement.

Even if the use of the word “generally” in the definition of an “action” in Regulation 165.2 loosens the definition’s construction somewhat, it still cannot support the Commission’s finding in the settlement Order that an employment agreement, in and of itself, can rise to the level of an “action” that impedes an individual from communicating directly with the Commission’s staff. Simply put, an agreement is not an “action” as that word is commonly understood.

This understanding is confirmed by the clause in Regulation 165.19(b) providing that an “action” to impede, includes “enforcing, or attempting to enforce,” a confidentiality agreement. If the agreement itself can be an “action” to impede, then there would have been no need for Regulation 165.19(b) to provide that the “action” of enforcing, or threatening to enforce, such an agreement is a violation – because the Regulation would already have been violated by the agreement itself.

The settlement Order does not contain any suggestion that Trafigura enforced, or threatened to enforce, a confidentiality agreement during the course of our staff’s investigation of this matter. Accordingly, I cannot agree that Trafigura “acted” to impede its employees from communicating with our staff in violation of Regulation 165.19(b).

We Can Learn from the Past, But We Cannot Change It

The conclusory discussion of this issue in the settlement Order ignores the simple fact that Regulation 165.19(b) contains no requirement for a company’s NDA to affirmatively inform employees that they may make voluntary disclosures to the Commission. Nor is such a duty ever meaningfully discussed in the rulemaking record in the Federal Register regarding the Commission’s adoption of Regulation 165.19(b).

Indeed, the rulemaking record not only fails to support an affirmative obligation for NDA carveout language – it actually undercuts the finding of the settlement Order that Trafigura violated Regulation 165.19(b). While the CFTC’s Whistleblower Rules were originally adopted in 2011, it was a rulemaking in 2017 that amended the Whistleblower Rules to add the provision in Regulation 165.19(b) that is at issue. The Commission’s proposing release for those amendments specifically stated that Regulation 165.19(b) was added “to prohibit the enforcement of confidentiality and pre-dispute arbitration clauses respecting actions by potential whistleblowers in any pre-employment, employment or post-employment agreements.”[6]

The Commission’s approach to this issue will have far-reaching implications, affecting every company that requires its employees to sign NDAs similar to those used by Trafigura. Any of these companies that has participated in a market regulated by the CFTC is now at risk of a “knock on the door” from the CFTC’s Division of Enforcement seeking to impose a civil monetary penalty for failing to fulfill an obligation that the Commission has neither provided any notice of nor expressly imposed.

Unspoken Expectations = Unrealistic Expectations

If the Commission wants to implement a policy that an NDA can constitute an “action” that impedes employees from communicating with CFTC staff, and that companies using such agreements have an affirmative duty to inform employees that they may make voluntary disclosures to the Commission, it should do so by amending its rule.

But at a minimum, if that is how the Commission intends to interpret Regulation 165.19(b), it should provide notice of that interpretation to the marketplace. For the past seven years, neither the Commission nor its staff has issued any advisory, guidance, frequently asked questions (“FAQs”), or any other statement informing the public of how it interprets Regulation 165.19(b).[7] By failing to do so, and instead enforcing Regulation 165.19(b) beyond its textual bounds, the Commission engages in a textbook case of “regulation by enforcement,” which I have repeatedly opposed.[8]

[1] This statement will refer to the agency as the “Commission” or “CFTC.” All web pages cited herein were last visited on June 14, 2024.

[2] Settlement Order at 6.

[3] 7 U.S.C. § 26.

[4] 17 C.F.R. § 165.19(b) (emphasis added).

[5] 17 C.F.R. § 165.2. Additionally, the definition contains specific rules relating to making an award and to determining the payment on an award, which are not at issue here.

[6] Whistleblower Awards Process, 81 FR 59,551, 59,555 (Aug. 30, 2016) (emphasis added).

[7] I recognize that: (1) the Securities and Exchange Commission (“SEC”) in recent years has settled charges under a similar theory based on similar rules, with differing gradations of facts; and (2) the CFTC’s proposing release for Regulation 165.19(b) included a footnote acknowledging “awareness of” the SEC’s 2015 KBR, Inc settlement, which was consistent with the finding of the settlement Order before us. However, the mere mention of this SEC matter does not negate the fact that the Commission’s 165.19(b) rulemaking record expressly stated the purpose was “to prohibit the enforcement of confidentiality” provisions. This plain language undermines the Order’s conclusion that an unenforced NDA provision, in and of itself, can establish a violation. Moreover, SEC settlements under its similarly worded rule do not constitute fair notice to participants in CFTC-regulated markets. Trafigura illustrates this point nicely. It is a global commodities dealer, not an issuer of securities, and its participation in SEC-regulated equities markets is unknown. As a result, it cannot be assumed that it (and other companies in a similar situation) devote significant resources to monitoring settled enforcement actions of the SEC – let alone considering what such actions might foreshadow about how the CFTC will interpret its separate rule set.

[8] See e.g., Dissenting Statement of Commissioner Summer K. Mersinger Regarding Enforcement Actions Against 1) bZeroX, LLC, Tom Bean, and Kyle Kistner; and 2) Ooki DAO (Sept. 22, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement092222.