The Commodity Futures Trading Commission (CFTC) recently issued a significant Enforcement Advisory detailing how companies and individuals can earn Mitigation Credit.
Rather than simply enumerating principles or best practices, the Enforcement Advisory sets forth for the first time ever a Mitigation Credit Matrix, which provides percentage-based reductions to civil monetary penalties based on and intersection of the entity’s level of (1) self-reporting and (2) cooperation.
1. Self-Reporting
Self-reporting is assessed on a three-tier scale:
- Tier 1 (No Self-Report): No timely disclosure or disclosure that lacked relevance.
- Tier 2 (Satisfactory Self-Report): A timely and relevant disclosure but lacking full material information.
- Tier 3 (Exemplary Self-Report): A voluntary, timely, and comprehensive disclosure that aids the Division’s investigation.
Voluntary self-reporting before an imminent threat of exposure can significantly improve an entity’s standing, with the highest credit given to those who provide meaningful insights beyond basic disclosure.
2. Cooperation
Cooperation is evaluated on a four-tier scale:
- Tier 1 (No Cooperation): Only fulfilling legal obligations without added assistance.
- Tier 2 (Satisfactory Cooperation): Providing documents, witness interviews, and relevant data.
- Tier 3 (Excellent Cooperation): Conducting internal investigations, root cause analysis, and remediation planning.
- Tier 4 (Exemplary Cooperation): Proactively engaging with enforcement, significantly assisting the investigation, and implementing accountability measures.
Uncooperative behavior, such as delaying compliance or obscuring key information, can negate any potential Mitigation Credit.
How Mitigation Credit Works
The Matrix provides companies with the opportunity to earn significant credit through cooperation and self-reporting. A company that both provides an “Exemplary Self-Report” and demonstrates “Exemplary Cooperation” may receive a 55% reduction in penalties. Furthermore, in extraordinary cases—such as voluntarily exposing large-scale fraud—the Division may even recommend a declination of enforcement.
What About Remediation
Remediation is not directly a part of the Matrix. Instead, it is treated as a mandatory gating item. Mitigation credit will only be awarded where the CFTC has concluded that “the potential violation and its root cause have either been remediated or that there is a remediation plan in place that is appropriate given the facts and circumstances.”
Final Thoughts
The Enforcement Advisory marks a shift towards greater predictability in enforcement actions. By setting clearer standards, the CFTC aims to enhance compliance while holding violators accountable in a fair and structured manner. Nevertheless, the Enforcement Division retains discretion to deviate from the Matrix, and the Matrix’s categories remain flexible enough that experienced counsel will be needed to appropriately navigate self-disclosure and ensure the company receives the appropriate amount of credit.
Understanding and adhering to these guidelines can make a significant difference in enforcement outcomes. Those who embrace self-reporting, meaningful cooperation, and proactive remediation will find themselves in a far stronger position when facing regulatory scrutiny.
