The role of the Commodities Futures Trading Commission (CFTC) in protecting whistleblowers is in question in light of a recently discovered filing.
According to the CFTC’s most recent report on whistleblowing activity submitted in October 2017, the CFTC noted, “A person may not take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the CEA, including by enforcing, or threatening to enforce, a confidentiality agreement or pre-dispute arbitration agreement with respect to such communications.” The CFTC further noted, “The Commission has authority to bring an action against an employer who retaliates against a whistleblower, irrespective of whether the whistleblower qualifies for an award. A whistleblower continues to have the right to pursue a private cause of action against such an employer.”
As The Industry Spread noted, Edwin Johnson, a former employee and part owner of 3 Red Trading, blew the whistle on the Chief Executive Officer Igor Olyshansky, and his spoofing activity.
Johnson, according to recently discovered filing, was summarily fired and made to sign an agreement which forbade him from speaking with any regulator, including the CFTC.
The CFTC further noted that Dodd/Frank provided specific protections for whistleblowers: “The notice-and-comment process for amending the Whistleblower Rules occupied much of the Period. The Commission’s Whistleblower Office (“WBO”) worked with the Office of General Counsel to review public comments on the proposed rules that were published in the Federal Register in August 2016.
“The final amended rules were published in May 2017 and went into effect July 31, 2017.The amendments strengthen anti-retaliation protections for whistleblowers and add transparency to the Commission’s process ofdeciding whistleblower award claims.”
It appears as though the CFTC sat by and did nothing while 3 Red Trading attacked Johnson and made him sign this agreement.
Here’s part of that filing: “Beginning in and around early September 2011, Johnson acted as the Chief Risk Officer and was the managing member in control of day-to-day of the business 3 Red. In this executive position he was 10% owner and Johnson had the authority to stop any trading activity which he determined was improper. In June 2013, Johnson confronted Plaintiff (Oystacher) concerning his illegal ‘spoofing’ commodities trading, and Johnson demanded that Plaintiff either stop his improper ‘spoofing’ or cease trading altogether.” The motion to dismiss written by Chicago attorney Jonathan Herpy stated. “Shortly thereafter, on June 17, 2013, in retaliation for Johnson confronting him, Plaintiff without proper authority, involuntarily and unlawfully terminated Johnson from his position at 3Red and refused to pay Johnson the value of his 10% ownership interest in 3Red or cause 3Red to make any severance payment to Johnson. Rather Plaintiff by way of confidential settlement agreement on August 15, 2013, sought to silence Johnson from speaking to regulatory authorities and government agencies. Knowing Johnson did not have the financial means after losing his position at 3Red to challenge plaintiff in legal proceedings, Plaintiff refused to pay Johnson for the value of his ownership interest in 3Red or cause 3Red to make severance payment to Johnson.”
In December 2016, the CFTC fined 3 Red Trading $2.5 million for the spoofing scheme which Johnson found but it doesn’t appear as though they protected Johnson nor did the CFTC sanction 3 Red for forcing him to sign an agreement which forbade him from speaking to authorities, even though both actions are forbidden as part of CFTC’s rules which are meant to protect whistleblowers.
Dennis Holden, CFTC’s public affairs officer, did not comment when asked to explain what the CFTC did in this case.
The lack of protection for Johnson is even more critical given that whistleblowers are currently the only way for authorities to sniff out market manipulators.
“Because there’s no automated way to link the trading and the underlying beneficial owner; there’s actually very little chance to identify and stop sophisticated market abuses without a whistleblower.” Tyler Gellasch said.
Gellasch is the Executive Director of the Healthy Markets Association and he was testifying in front of the House of Representatives.