JONES DAY TALKS® – CFTC and DOJ Target Derivatives Trading Across Industries
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Dave Dalton:
Recent actions of regulatory and enforcement agencies make it clear that they continue to monitor derivative markets for signs of illegal fraudulent conduct intended to manipulate those markets. They're definitely watching. Jones Day partners, Josh Sterling and Brian Rabbitt are here to talk about how the Commodity Futures Trading Commission and the US Department of Justice are working together to uncover illegal activities in the derivatives markets. I'm Dave Dalton, you're listening to JONES DAY TALKS®.
Dave Dalton:
Josh Sterling has 20 years experience in the derivatives and securities markets, both as lead counsel to major companies and as a senior federal financial regulator. Josh represents clients that are active in the derivatives markets with matters before the US Commodity Futures Trading Commission or CFTC, the US Securities and Exchange Commission; SEC and various self-regulatory organizations. Prior to joining Jones Day, Josh was director of the CFTC's Market Participants Division, which regulates more than 3,300 banks, intermediaries and asset managers registered with the agency to trade derivatives in the US markets.
Dave Dalton:
And Brian Rabbitt is an experienced litigator with deep experience resolving complex problems and handling sensitive investigations and enforcement matters at the highest levels of government. Prior to joining Jones Day, Brian was the acting assistant attorney general for the DOJ's Criminal Division. As head of one of the DOJ's largest criminal enforcement components, Brian led hundreds of federal prosecutors responsible for investigating and prosecuting white collar cases, including securities, commodities and healthcare fraud. Before heading the criminal division, Brian also served as a chief of staff in the Attorney General's office in senior roles at the US Securities and Exchange Commission and in the office of the White House counsel.
Dave Dalton:
Josh, Brian, thanks for being here today.
Josh Sterling:
Thank you very much, Dave. Good to be here.
Brian Rabbitt:
Thanks so much, Dave. Very happy to be here with you.
Dave Dalton:
Thanks so much for joining. Josh, let's start with some background on the Department of Justice, CFTC Commodities Fraud Task Force Initiative. Talk about what that is and why it's relevant to the conversation we're having today.
Josh Sterling:
Sure, Dave. Happy to do that and I'm very glad to be joined by Brian and having this conversation because otherwise it'd be like trying to play baseball with one arm, given his background at the department. The task force at DOJ has been around for some time and the CFTC has had its own set of task forces around different aspects of commodities fraud and disruptive trading for a number of years now. Really over the last three or so years between the two agencies, there's been a concerted effort to coordinate on parallel proceedings where there's a violation of the Commodity Exchange Act, say for manipulative trading affecting the prices of commodities, disruptive trading, affecting the price of commodities. There is criminal liability under the Commodity Exchange Act. There's also civil liability. The CFTC can only bring civil actions or administrative enforcement actions.
Josh Sterling:
The criminal authority appropriately lies with the Department of Justice and where there is a violation that would appear to be criminal in nature, the agency and the department work closely together. They've done that to great effect with some recent cases I know Brian will talk about. It's really an excellent opportunity to bring together the CFTC's knowledge of the law, its data and information about the market and all its tools, along with the powerful skill and investigatory abilities of the Department of Justice to get to remediations where justice is vindicated. It's been an effort to do that in these markets, which as we talked about in our prior podcast, affect the price of almost anything that average Americans use.
Dave Dalton:
Sure, sure. Josh, you mentioned this initiative escalated or really started over the last three years. And we'll talk more about how this came together and what the signals are that maybe an investigation is warranted. But you say three years ago. What happened? Is that an organic thing? Someone says, "Yeah, we got to start cooperating on these things," or was there some regulation that came down, an act of Congress? What jump started the cooperation with these investigations?
Josh Sterling:
Sure. I do think there has been coordination between the agency and the department for years. But to my way of thinking, having observed this over the last five years or so, there's really been an uptick in light of additional powers to pursue violations in the Commodity Exchange Act that were conferred by the Dodd Frank Act, going back 10 years ago. One of which we'll talk about today, which is spoofing and other kinds of disruptive trading. Spoofing; an odd term defined in a statute, but simply stated means entering bids and offers to trade commodities and then you cancel them and you had no intention whatsoever to execute them. You create a false picture of demand on either side of the market. That's spoofing and it can really disrupt the price of commodity futures, commodity options, that's even the price of the commodities themselves that people use in their everyday lives.
Dave Dalton:
Sure, sure. Good that sort of thing is being heavily monitored, that's for certain. Brian Rabbitt, first podcast with us. Two things: welcome to Jones Day and welcome to JONES DAY TALKS®. Thanks again for being here today. Brian, talk about some recent notable cases when it comes to DOJ, CFTC enforcement and cooperation.
Brian Rabbitt:
Yeah, absolutely, Dave. Thank you very much for the welcome. I'm really glad to be here and excited to be talking about these issues today. Josh is exactly right. Over the last three to five years you've really seen an increased focus on this area by both DOJ and CFTC. Speaking from the DOJ perspective when I was there and proceeding my time, there was a lot of resources that were invested in the effort to tackle commodities related fraud. Fairly recently, they rebranded one of the principle units in the fraud section in the criminal division as the Market Integrity and Major Fraud section and that's now grown to 40 prosecutors. It's got new leadership and they're really focused on this area.
Brian Rabbitt:
But if you go back in time, beginning in the early teens, 2013, 2014, 2015, the department and the CFTC really began to focus on these issues. Particularly spoofing, which is something that Josh mentioned, has been a particular focus for DOJ over the last five or so years. In terms of individual prosecutions, most industry watchers would say that the department's results have been a little bit mixed over the last five years. There have been a number of significant convictions at trial. There also was a fairly high profile acquittal, a hung jury that resulted in a dismissal. I will say that last year, most recently during the pandemic, the department obtained a fairly significant conviction of two traders for a large financial services firm that involved allegedly in spoofing the precious metals markets in 2009, 2010, 2011. That was in the Northern District of Illinois. So I think recently in terms of individual prosecutions, the department has seen more success.
Brian Rabbitt:
In terms of corporations and corporate resolutions in this space, I think that the department has had a number of notable resolutions in the last three years. Beginning in 2018 and 2019 you've seen a series of resolutions that were increasingly large involving spoofing in the precious metals market, including a number last year that culminated in an almost billion dollar resolution with a major international bank that was coordinated with both the CFTC, as well as the SEC.
Dave Dalton:
A billion with a B, that's huge. I remember the case. We don't need to get into details. I don't remember it being that large of a figure at the end. That was a huge action then by both agencies, wasn't it then?
Brian Rabbitt:
Yeah, it was. I think the actual number was $920 million give or take, in terms of the resolution. But yeah, it was a huge effort by the department as well as its partners at the CFTC. As I mentioned, it also involved coordination with the enforcement division at the SEC, so it was a broad ranging resolution.
Dave Dalton:
Interesting, interesting. Let's talk about data and more specifically data analytics. So prominent in investigative and enforcement actions today. Talk about how data analysis is applied in these investigations. Let's go to Josh first, then over to Brian.
Josh Sterling:
Absolutely, Dave and thanks for the question. I'll just add on the last point, that as clients and friends in the industry think about their potential liability exposure, an obvious theme here is that you need to consider not only the possibility of civil enforcement or administrative proceeding against you by the CFTC, but the potential for a parallel criminal action. There's a pretty good roadmap or handbook on how to deal with that, that Brian and I and others at the firm are bringing to bear to help clients.
Josh Sterling:
Onto data though, what I would say is that data is becoming the coin of the realm and I can speak specifically about the agency. We undertook a significant reorganization of the agency that was concluded last November under then chairman Heath Tarbert, that created a new division. A fifth division, a division of data. The division of data is a focus point for taking in all the information from firms that are registered with the CFTC, the ones I used to oversee, and all the exchanges. Then all the data repositories that get information say, about swaps. To clean the data, analyze the data and make the data more user friendly and develop tools to analyze it for different programs.
Josh Sterling:
It is no secret, and folks in the agency have indicated that that will enhance the ability of the agency to conduct examinations and also to pursue investigations. I know in the one large case Brian mentioned that settled for $920 million dollars, there was a period of time where work on the case was put on pause so that the appropriate data tools could be developed. And they were, and that made bringing the case more possible, if you will. That was all reported in the press. I think that the data are being suited or made fit for their purpose, including enforcement and there's a tremendous ability and willingness to share data across agencies in case of investigations.
Dave Dalton:
Sure. Josh, when we're talking about data analysis and please forgive the naive question, is every trade tracked? Because I know there are millions and millions of trades. But is every trade somehow, does it go through some sort of filter? Are there thresholds, are there certain types of trades you look at? Are there certain firms for that matter, that caught attention? Do you look at everything or does the CFTC? Then we'll go to Brian at the DOJ. Do you look at every trade or are there some parameters before they catch attention?
Josh Sterling:
Right. Well, there are pattern recognition tools and other tools that are used to identify potentially illegal conduct. Those tools are used by the brokers that complete the trades, sometimes. They are used by the exchanges where the trades are done and they're done as a meta analysis by our agency. I keep saying our; I mean the CFTC. I resigned, after all. So yes, every trade is captured. There's a complete and total audit trail that's required by law. That's true of trades that are cleared, like futures trades and some swap trades. It's also true for swaps that are not cleared or traded on an exchange, just trades between two people, two companies, if you will. That's also reported and gathered. All of that can be gleaned and used. I think the ability of the CFTC to do that is being enhanced dramatically with this brand new division of data.
Dave Dalton:
Interesting. Brian, talk about the DOJ in terms of data analysis, how does that compare or how's that work with what the CFTC does?
Brian Rabbitt:
I think Josh is exactly right. That in terms of enforcement, both the CFTC and the DOJ, where I was for several years, data and data analytics are becoming central to their ability to investigate. To spot, investigate, develop, and prosecute cases like this, complex cases. Something that the department, the criminal division in the fraud section uses in a number of different areas. They use it in the healthcare fraud space and they obviously use it in the market manipulation space. What it really does is it allows enforcement authorities to spot trends, to discover conduct in the markets that they might otherwise miss. That might otherwise be too complex or too large a scale to see individually. They look for patterns, they look for outliers.
Brian Rabbitt:
You asked Josh whether there was an effort to scrutinize all trading data. Not at the DOJ. I mean, they are not a market surveillance regulator. They are not in that business. They do rely pretty heavily on agencies like the CFTC, like the SEC to spot trends and data in the first instance, at least in this space. I will say one thing that the department's tried to do in recent years, is provide incentives for companies to do this themselves. For their internal compliance functions to monitor and surveil their own work. To use data and data analytics in the same way that the CFTC, the SEC, the DOJ does. To spot issues before they occur or as they're occurring to allow the compliance functions in companies to get ahead of these things and to loop in the authorities if necessary.
Dave Dalton:
So important, so important. Question to you both, and I'm going off our outline a little bit here. How did investigations get started before data? Did you rely on tips, whistleblowers? I'm wondering how you do this before you had data to really analyze? Historically, what did the DOJ and the CFTC do?
Brian Rabbitt:
You mentioned it, Dave. In terms of traditionally developed cases, self-reporting by companies that discover issues is obviously a big source of cases for the department. As well as whistleblowers who come in. That happens both at agencies like the CFTC, the SEC and at the DOJ. And that's not changed, that is still a source of cases for the DOJ, but it's something that they pair up with data analytics frequently.
Dave Dalton:
Okay. Let's turn our attention to the joint DOJ and the CFTC efforts in terms of anti-corruption. Brian, give us some background on this and what the anti-corruption initiatives or efforts are doing.
Brian Rabbitt:
Sure, Dave. The Department of Justice has long been a global leader and obviously the most significant US enforcement agency in terms of pursuing foreign bribery, anti-corruption. It's something that the department's been focused on for many years in terms of enforcing the FCPA. Their traditional partner, the other agency that has been most active in this space, has been the Securities and Exchange Commission, which has a whole unit that's set up and by statute is also charged with enforcing the FCPA. It's something that Josh can probably speak to in a little more detail. But in the last several years, the CFTC has also indicated its intent to begin policing anti-corruption, foreign corruption, foreign bribery, as it relates to the commodities derivatives and futures markets. It was something that the CFTC announced a couple of years ago. They put out a number of publications indicating that they were scrutinizing this space. And then you saw those efforts culminate at the end of last year in a joint resolution between the DOJ and the CFTC and authorities in Brazil involving a major global energy trading company.
Brian Rabbitt:
I can just provide a little bit of background on the case. The department charged two separate schemes as a violation of the Foreign Corrupt Practices Act. The first was about a decade long scheme, which alleged that the company and its co-conspirators paid millions of dollars in bribes to obtain confidential pricing and competitor information, which was then used to win oil and fuel delivery contracts. Then the second scheme is about a five year period. Slightly different. Alleged that the company participated in a conspiracy to bribe officials in Ecuador, in Mexico, in connection with the purchase and sale of oil products. That was resolved by the department at the end of last year for about $135 million. At the same time, the CFTC announced a parallel resolution of about $95 million in penalties and disgorgement charging essentially the same conduct. There was a small additional piece in the CFTC resolution and they also provided a credit against the DOJ resolution. As I also mentioned, there was a parallel resolution by Brazilian authorities for the Brazilian piece of the alleged scheme.
Dave Dalton:
Interesting. Josh, pickup on this matter that Brian's been talking about with this energy trading company. Was there anything different about this case or this matter, the way it unfolded? Or how it was investigated and ultimately prosecuted? What was different here?
Josh Sterling:
Yes. I would say that from my perspective, the involvement of justice in particular was quite helpful. There was a lot of information and discovery that involved conduct in foreign markets, which including markets for physical commodities. And while the agency has anti-fraud, anti-manipulation authority over physical commodities, it has much less information about them than say it does about trades done; their derivatives based on the commodities futures and options and so forth. So there was a great degree of discovery that needed to be done and a lot of work that needed to be done that was important.
Josh Sterling:
The agency also made a significant commitment to focus on this area. It created its own task force and their theory is sound, but it was novel at the time was announced. We have a settlement here, we don't have an adjudicated case in court. But the idea was that this corrupt conduct or this bribery that occurred overseas affected the price of the physical commodities themselves and could also affect the price of the commodities in the derivatives markets. So that was brought under the Commodity Exchange Act's prohibition on manipulative trade. It wasn't as if the CFTC was making an express case under the Foreign Corrupt Practices Act, the idea was that the same facts were a violation of the Commodity Exchange Act. That was novel and I would expect to see more cases along those lines in the future. I think it's an area where the CFTC sees a real benefit partnering with the DOJ and the huge persistent push within the federal government to continue to police foreign corruption.
Dave Dalton:
Sure, sure. And that's a nice segue into what I was about to ask Brian about in terms of how this case fits into the larger anti-corruption landscape and enforcement actions. Where do you see things going from here, Brian?
Brian Rabbitt:
Sure. Josh is right. This is really the first CFTC enforcement action that came out of the agency's anti-corruption initiative. And it's the first case to use foreign bribery and corruption allegations as a basis for violations of the Commodities Exchange Act. I think this really fits a pattern of additional enforcement authorities, both in the United States and globally, becoming interested in and focusing on the foreign bribery area. As I mentioned earlier, DOJ has traditionally partnered with the Securities and Exchange Commission, and now it's partnering with CFTC as a new partner in this area.
Brian Rabbitt:
I think as Josh mentioned, the CFTC is likely to continue focusing on this area. And I think you're likely to see continued partnership between the department and the CFTC in the commodity space in terms of foreign bribery. Just last week, there was an employee of a European oil trading firm who entered a guilty plea up in New York in connection with a scheme to bribe officials in Ecuador. I think that shows that the DOJ remains active in this space. The resolution we were talking about earlier certainly was not a one-off, if this guilty plea is any indication. I would really look for continued coordination going forward where foreign bribery and the commodities derivatives markets intersect.
Dave Dalton:
It seems to be working, that's for certain. Josh, in terms of this particular case, is there a takeaway in terms of what regulated parties, energy companies, in this particular instance should be aware of? What's the takeaway here, do you think?
Josh Sterling:
Yes, absolutely. I think it's a reminder to clients and friends in that space that as you look at your controls to address foreign corrupt practices under longstanding DOJ principles, you need to think about how that applies to your business of trading commodities or trading derivatives, as well. I think that this is an area that the clients in some sectors will want to pay particular attention to. Obviously, energy and power is one area. I think agriculture as well. You can think of really any business with an international footprint that has a connection to physical commodities or commodities trading, will want to be wary of this area and recognize that there could be cases now that could start at the CFTC and DOJ is looped in. You have a similar problem that creates knock on issues on multiple fronts and it's worth taking a look at your internal infrastructure with that in mind.
Dave Dalton:
We're probably going to talk more about that in a second. But for now, Josh, let's talk about parallel investigations. That's a term we're hearing much more often. How does a particular case attract the attention of the CFTC and the Justice Department? Where does this start sometimes in terms of a parallel investigation? Where do they come from?
Josh Sterling:
Sure. Well, I can certainly speak from my time at the CFTC, I think Brian mentioned the other areas in which DOJ is active and they're myriad. Healthcare fraud, many other things that they do. The business of the CFTC of course, is the commodities markets. So the actions in the commodities markets are more often than not going to be borne out of the CFTC and its network of exchanges and brokers that it regulates, that also have to police for misconduct. That is a bottom up approach. There could be a problem with a particular trader that its broker flags. The broker may flag it to the exchange. The exchange may have flagged it itself and they bring it to the attention of the CFTC. And before you know it, subpoenas or requests for information are issuing.
Josh Sterling:
And if the conduct is egregious, there is that architecture of cooperation between the CFTC and DOJ to bring cases together. That's really solidified because there have been great results. The action really begins from the bottom up in the commodities markets. As much as it's a priority area for DOJ, with the commitment of 40 prosecutors and stuff, the conduct is egregious, you're likely to see DOJ pickup and have a parallel proceeding. This is why, just to conclude the thought here, what we tell our clients in the commodities markets is, if you are getting an inquiry from an exchange or even a broker about your trading, it's a safe assumption that your response could be worked all the way up the chain in the Department of Justice. So you should take those kinds of inquiries very seriously because it can accelerate quickly and you want to have your hands around all of it.
Dave Dalton:
Josh, at the CFTC, again, I'm getting into the weeds a little bit here, but things attract attention. When you were at the CFTC, you get a tip, you see something that looks like an outlier, as Brian put it earlier, in terms of your data analysis. If you get 100 of those, how many are actively investigated at some point? Do 90% flame out or are most of them legit? There's something wrong here. I'm just wondering how the numbers shake out in the real world.
Josh Sterling:
Yeah, I think it is safe for everybody to assume that if you have a tip that comes into our whistleblower office, where the whistleblower can earn a significant monetary award if that leads to a settled action or an adverse judgment against the source of the complaint, then you can expect that will be followed up pretty aggressively.
Josh Sterling:
In terms of data, the division of enforcement has a surveillance function inside of it apply their own metrics. And so it might be in a given period let's say, that an exchange or the CFTC itself identifies a hundred instances of potentially suspicious conduct. It's safe to assume all of those are looked at carefully, internally. Less than all of them probably wind up in some form of outreach to the exchange or to the trader. But when they do, there's usually a pretty strong theory as to why there ought to be outreach. There is vetting, but if surveillance function at CFTC has a clear roadmap of what they're looking for and will follow those things up. I'll also add that oftentimes you see a marrying of tips and data analysis. You get a tip and then you do a deep dive in the data and you find things perhaps you might not otherwise have found. I think you'll see a confluence of those things continue and lead to even more significant results in the future.
Dave Dalton:
Sure, sure. Let's go back to Brian for a second. Josh has talked about the CFTC side of all this. How does the DOJ get interested? Where do they come in?
Brian Rabbitt:
That's a great question, Dave. Obviously, the CFTC is very focused on the commodities market. The DOJ from a criminal enforcement perspective cannot investigate and prosecute every violation or every issue that the CFTC identifies. It's really a facts and circumstances analysis. A case by case thing. The DOJ does identify market manipulation cases on its own through various ways. Some come in, as I mentioned earlier, through self-disclosures from companies that have identified issues either through their compliance function or internal whistleblowers. The DOJ also works up and identifies cases through cooperators. But many of the most significant cases in this area that we're talking about that the DOJ identifies, come through referrals from regulatory agencies, partners like the CFTC. As Josh mentioned, those agencies may in turn identify things through data analytics, self-disclosures, whistleblowers, et cetera.
Brian Rabbitt:
The DOJ really benefits from close partners like the CFTC who are really subject matter experts in these areas. Spotting conduct, raising it up the flag pole when it really is significant and may amount to a criminal violation. Explaining it for prosecutors who tend to be a little more generalist in their approach than the experts at agencies like the CFTC and then referring it with some explanation.
Brian Rabbitt:
The question for DOJ with a referral, is really whether it rises to the level of a criminal violation that is going to get the DOJ interested. The DOJ has a higher burden of proof than a regulatory agency like the CFTC. They need to assess whether there's been a criminal violation that they can prove beyond a reasonable doubt. The DOJ will often try to look at the case from the perspective of a jury when they're considering whether they're going to devote resources to investigating it. Can they prove this at trial? Will the jury vote to convict either the company or the individuals? There really typically, in my experience, needs to be some appeal beyond a basic regulatory violation, not that those aren't serious. Is there appreciable harm to victims, widespread misconduct, large scale financial loss?
Brian Rabbitt:
And then they look at issues of proof. Can they prove this to a jury? Are there documents that corroborate what the data is telling them? Are there communications that the department or the CFTC has been able to uncover? Text messages, chats, emails that lend credence to the idea that there was an actual criminal violation here. Are cooperators willing to testify and to tell the department what they know? Are there recorded conversations and that sort of thing? All of that goes into the pot and the department, working with its partners at the CFTC, will assess whether it's a case that they really want to pursue.
Brian Rabbitt:
But Josh is exactly right. When a company is speaking to a regulator when they're responding to an inquiry, even if it seems to be an initial inquiry to a regulator, they need to try to look around corners. We certainly do here at Jones Day and try to anticipate not where this is going to be initially, but where it's going to be down the road. Step one, step two, step three, and try to account for that in their response.
Dave Dalton:
Sure. Well, Brian, based on your experience, there are incentives out there in terms of the corporate enforcement policies for self-reporting and so forth. Talk about how those work with a case and how it pertains in terms of the whole approach to handling a case like this.
Brian Rabbitt:
That's absolutely right, Dave. There are a number of policies that the department's put out in recent years relating to corporate enforcement, including the aptly named Corporate Enforcement Policy within the criminal division. It is now applicable, that policy, to all matters involving fraud section and frankly, the criminal division. And what it does in a nutshell, is it provides substantial benefits up to and including declinations under certain circumstances to companies that voluntarily self-report misconduct. That cooperate appropriately with an investigation by DOJ and then engage in remediation of the misconduct and the harm that it has caused.
Dave Dalton:
Josh, same issue. Does the CFTC follow a similar path in terms of self-reporting cooperation, that sort of thing?
Josh Sterling:
Absolutely. The CFTC also has policy statements on self-reporting, cooperation, which would include efforts to remediate the wrongdoing. I can tell you that the agency is willing to give significant discounts or haircuts on penalties when firms self-report and when they're cooperative and work towards remediation. By the same token, the agency will be very strong and it will be, not a technical term, but an aggravating factor if a company has frustrated the investigation or if heaven forbid, make false statements in connection with getting rid of an action. I can tell you that there was a recent case that had been settled in 2018 or thereabouts, on the basis of some incorrect information. The case was effectively reopened and became much worse for the company because false statements had actually been made in connection with that settlement. That's true certainly with any agency and certainly within the department. But the headline is yes, there can be significant dollar reductions and other of settlement burdens if you self-report, cooperate and remediate.
Dave Dalton:
Sure. That's a good point to start wrapping this conversation up. We can go back to Brian. Talk about the importance at a high level of full disclosure and transparency during an investigation. That's got to only help the company, correct? If they're transparent and come forward with relevant information, right?
Brian Rabbitt:
That's exactly right, Dave. And Josh raises a good example of the pitfalls of what can happen where there's lack of full transparency or misstatements or incomplete information is provided to an agency like the CFTC or even the DOJ in connection with a settlement. It does not end well. Both the DOJ and CFTC policies that Josh and I have been talking about make clear that the quality of a company's cooperation really matters. Are the disclosures that are made timely? Does it include all known relevant facts? Are all known relevant individuals identified and made available to the agencies? Is the cooperation proactive? Are you actually going out, identifying issues and raising them to the agencies? And does the cooperation actually materially help the agency, be it DOJ or the CFTC in its investigation? Both will really assess the scope, quality and the quantity of the cooperation and all of that really bears on the credit that's available.
Brian Rabbitt:
Companies, in my experience in private practice in the government, they often aren't in a position to self-report because a whistleblower has already come forward, a cooperator's already identified an issue, or the CFTC has already flagged something through its own work. But they can nevertheless still get significant credit for cooperation even if they don't self-report, provided that cooperation is high quality. Under the policies the CFTC staff may still recommend a substantially reduced penalty. The DOJ may recommend a significant percentage off the bottom end of the applicable sentencing guidelines range. So cooperation is essential.
Brian Rabbitt:
But you also mentioned coordination. I also think that's very important. The DOJ in the last couple of years has enacted what's colloquially known as the anti-piling on policy. Which basically says where there's actual coordination in terms of resolving a matter between agencies like the CFTC and the DOJ or the SEC, the DOJ will in appropriate circumstances, seek to credit or offset resolutions with other agencies against resolutions with the department.
Brian Rabbitt:
I think the takeaway there for companies to keep in mind, is that actual coordination is really key. A number of department officials have in recent months made statements explaining this a little bit more. I think the takeaway has been, you can't go and resolve with the CFTC and then come to the DOJ and present that as a fait accompli. The parties really all need to be at the table and have an opportunity to hash out a truly coordinated resolution in order for the full benefits of the policy to be available. That at least has been my interpretation.
Dave Dalton:
Sure. I would imagine the earlier, the better too, right?
Brian Rabbitt:
That's right. On the one hand, an enforcement agency, like the department, the CFTC, is not going to be willing to resolve a case unless and until they are satisfied that they have a good knowledge of the facts and that the case is ready to be resolved. On the other hand, agencies are often receptive to companies that come in early and are number one: cooperative and number two: express an interest in resolving the matter, because that can save substantial resources for the government. Obviously, companies need to make a careful assessment of whether that's something that they want to do, but if they do decide that they want to do that, getting in front of an agency early can often yield benefits.
Dave Dalton:
We're going to leave it right there. That's a great way to sum up this conversation. Brian, Josh, thanks so much. But before we do sign off, I want to remind everybody this is the second in a series of podcasts that we're working with, with Josh Sterling. Josh, we've got a couple programs coming up in the near future. What's on the agenda as we move forward through this series of JONES DAY TALKS® podcasts?
Josh Sterling:
Yes. Well, thanks Dave and thank you Brian for participating today. I think it's been good to have this conversation for our clients and friends about parallel proceedings in this space. I'll just say that it truly is parallel. So much so that the firm has put Brian and I next to each other in the DC office, physically. Having made that pretty weak joke, I will say that the next programs in our series will cover not only the energy markets and coordination between the CFTC and FERC and some state energy regulators, power regulators, but also ESG and what that means for climate risk, the financial system and the regulatory response to it. Those are the next couple of episodes coming up in the series.
Dave Dalton:
Sounds really good. Very timely information, that's for certain. we're looking forward to getting together with you on those, Josh. Thanks so much. Brian, Josh, thanks for being here today.
Brian Rabbitt:
Thank you very much, Dave. It's been a pleasure to speak with you and with Josh about these issues.
Dave Dalton:
Thanks. Sure, we'll talk soon. You can find complete biographies and contact information for Josh Sterling and Brian Rabbitt at jonesday.com. And while you're at your jonesday.com, be certain to visit our Insights page. There you'll find blogs, white papers, commentaries, more podcasts, videos and other important content. Subscribe to JONES DAY TALKS® at Apple Podcasts and wherever else quality podcasts are found. As always, we thank you for listening. I'm Dave Dalton, we'll talk to you next time.
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