This week’s enforcement update covers:
- FERC issues Order Approving ENPM Stipulation and Consent Agreement;
- Footprint Elects De Novo Review in FERC Show Cause Proceeding;
- CFTC Announces Its Largest Ever Whistleblower Award of Approximately $30 Million, and First Award to a Foreign Whistleblower;
- CFTC Staff Issues Research Report on Sharp Price Movements in the Commodity Futures Markets
- SEC and CFTC Announce Approval of New MOU
FERC issues Order Approving ENPM Stipulation and Consent Agreement. On July 25, FERC approved a Stipulation and Consent Agreement (Consent Agreement) between the Office of Enforcement (Enforcement) and Entergy Nuclear Power Marketing, L.L.C. (ENPM). ENPM agreed to pay a civil penalty of $115,000 and to pay disgorgement of $47,084, plus interest. ENPM is a business unit of Entergy Corporation and was the lead market participant for the Rhode Island State Energy Center (RISE) – a 575 MW two-unit combined-cycle natural gas generation facility owned by ENPM’s affiliate, Entergy Rhode Island State Energy, L.P. Enforcement investigated whether ENPM violated 18 C.F.R. §§ 35.41(a) and (b) and ISO New England Inc.’s (ISO-NE) Tariff, Market Rule 1 § III.18.104.22.168.1 (“Energy Market Offer Requirements”) and § III.1.10.1A(d) (“Day Ahead Energy Market Scheduling”) when ENPM: 1) failed to timely act in response to a natural gas pipeline notice restricting interruptible fuel transportation service, leading ENPM to have insufficient fuel to meet dispatch instructions at one gas-fired power plant, and 2) failed to timely update its open supply offer or otherwise notify ISO-NE of its potential inability to meet dispatch instructions after the notice was issued. Enforcement determined that ENPM’s violations were the result of a failure to exercise sufficient diligence to ensure that RISE was able to meet its dispatch obligations. Other factors considered in reaching the proposed penalty included: the lack of any intent to commit the violations; steps ENPM has taken to ensure that repeat violations will not occur; the absence of significant market harm caused by the violations; ENPM’s full cooperation with the investigation; and ENPM’s resolution of this investigation without a hearing. As set forth in the Consent Agreement, ENPM stipulates to the facts but does not admit violations of Energy Market Offer Requirements and Day Ahead Energy Market Scheduling. FERC concluded that the Consent Agreement was a fair and equitable resolution of the matters concerned and is in the public interest, as it reflects the nature and seriousness of ENPM’s conduct.
Footprint Elects De Novo Review in FERC Show Cause Proceeding. On July 13, Footprint Power LLC and Footprint Power Salem Harbor Operations LLC (Footprint) filed a Notice of De Novo Election in FERC Docket No. IN18-7 exercising their rights under § 31(d)(1) of the Federal Power Act to the federal district court path described in § 31(d)(3) of the Federal Power Act. Footprint asserts that any FERC action would be time barred by the statute of limitations set forth in 28 U.S.C. § 2462. If FERC nonetheless decides to assess penalties, however, Footprint invokes its statutory right to review of that penalty in federal district court, where the court “shall have authority to review de novo the law and the facts involved, and shall have jurisdiction to enter a judgment.”
CFTC Announces Its Largest Ever Whistleblower Award of Approximately $30 Million, and First Award to a Foreign Whistleblower. On July 12, the CFTC announced an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action. The award is the largest award made by the CFTC’s Whistleblower Program to date and is the fifth award made by the program. “The Whistleblower Program has become an integral component in the agency’s enforcement arsenal,” said CFTC Chairman, J. Christopher Giancarlo. “We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act [CEA].” James McDonald, Director of the Division of Enforcement, stated: “Whistleblower submissions have become a significant part of our enforcement program, allowing us to pursue violations we might otherwise have been unable to detect. That’s one reason why we’ve worked hard to expand our Whistleblower Program, including by increasing the protections afforded to whistleblowers that come forward. I expect the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.” The CFTC pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information on violations of the CEA that leads the CFTC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000. By law, the CFTC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected. All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from harmed investors to fund the program. Previously, the highest award amount paid to a CFTC whistleblower was in March 2016 of more than $10 million.
Four days later, on July 16, the CFTC announced an award of over $70,000 to a whistleblower who significantly contributed to an ongoing CFTC investigation and led the CFTC to a successful settlement, marking the first award made by the CFTC’s Whistleblower Program to a whistleblower living in a foreign country and the sixth award to a whistleblower who provided valuable information about violations of the CEA. The award demonstrates the international reach of the Whistleblower Program, underscoring that any person worldwide who has information about potential violations of the CEA can become a whistleblower by simply submitting a tip online. James McDonald, Director of the CFTC’s Division of Enforcement, stated: “This award is significant because it signals to whistleblowers around the world that anyone with information about potential violations of the Commodity Exchange Act can participate in the CFTC’s Whistleblower Program. The award also serves as another example of the increasing significance of whistleblowers in our enforcement program, a trend I expect to continue going forward.”
CFTC Staff Issues Research Report on Sharp Price Movements in the Commodity Futures Markets. On June 29, CFTC Division of Market Oversight (DMO) issued a report that analyzed sharp, intraday price movements in the commodity futures markets. DMO staff in the Market Intelligence Branch analyzed 2.2 billion transactions from 16 of the most actively traded futures contracts in all major market sectors using data from 2012 through 2017. Key findings from the research include: (i) neither the frequency nor intensity of sharp price movements appear to be consistently increasing over time; (ii) sharp price movements are linked to volatility, market fundamentals, and news and data releases; and, significantly, this research does not show signs of weakness or fragility in the futures markets causing disruptive price movements; and (iii) the U.S. commodity futures markets are very efficient, incorporate new information quickly, and continue to support the price discovery process.
SEC and CFTC Announce Approval of New MOU. On June 28, the SEC and CFTC announced that the two agencies have approved a Memorandum of Understanding (MOU) that will help ensure continued coordination and information sharing between the two agencies. The MOU updates and enhances a 2008 MOU to make it more relevant in the current market environment and promote efficiency in rulemaking, regulatory oversight, and enforcement. For example, the new MOU specifically addresses the regulatory regime for swaps and security-based swaps. “Today’s interrelated markets demand that the SEC and CFTC work together to provide a coherent and coordinated approach to regulation, said SEC Chairman Jay Clayton. “This MOU confirms our agencies’ commitment to working together as partners with distinct missions—all to the benefit of investors, as well as other market participants.” “Chairman Clayton and I identified these rules and regulations as an area where coordination would enhance our effectiveness,” said CFTC Chairman Christopher Giancarlo. “Simply put, greater harmonization of our Title VII rules will enhance our oversight efforts and reduce unnecessary complexity, and lessen costs on both regulators and market participants. This MOU strengthens our joint regulatory response, streamlines our partnership and makes information sharing more seamless and effective.” The agencies anticipate that they will continue to cooperate primarily through ongoing informal consultations and meetings.