CFTC Whistleblower Alert: Blow the Whistle on Fraud or Market Manipulation in the Carbon Markets

The Commodity Futures Trading Commission (CFTC) recently put out a Whistleblower Alert to instruct individuals on how to blow the whistle on fraud and market manipulation in the carbon markets. Eligible whistleblowers may receive financial awards and certain protections if they report substantial violations to the Commodity Exchange Act that are related to fraud and manipulation in the carbon markets.[1]

In short, if you know about the manipulation of the carbon markers, you should speak with a CFTC whistleblower attorney immediately, to learn your rights, as you might be entitled up to 30% of the what the recovery is as a CFTC whistleblower award.  “Going green” doesn’t mean going after money, it’s supposed to be about a healthier environment.

What are Carbon Markets?

Carbon markets (CMs) are financial systems designed to reduce greenhouse emissions by trading carbon credits. Carbon credits allow their purchasers–who might be a business or an individual–to emit certain amounts of carbon dioxide or other greenhouse gasses. CMs are usually run by governments or international regulatory bodies, but some are entirely voluntary. These governments or groups of governments cap emissions and assign allowances to various countries, businesses, or other entities.[2]

If an entity doesn’t use all its credits, it can sell them to another entity that is expected to exceed their set limits. An entity can also create credits by offsetting their emissions. Some ways to do this are to invest in emission reduction programs (e.g. solar panels or wind farms) or emission removal programs (e.g. carbon capture or reforestation).[3]

Despite their lofty environmental goals, CMs have been criticized for not working as well as they are supposed to and for not providing enough transparency to their investors. Despite the criticisms, in 2023, the Boston Consulting Group predicted that CMs are going to be a $10-40 billion market in 2030, and demand will likely grow rapidly as improvements in monitoring, reporting, and verification will reassure investors their money is going to the right places.[4]

What is the CFTC?

Established in 1974, the Commodity Futures Trading Commission (CFTC) is a federal agency that regulates derivatives markets, futures contracts, options, and more in the United States to promote fair market practices and protect against financial wrongdoing. There are five committees in the CFTC that focus on agriculture, energy, and environmental markets, global markets, market risks, and technology.[5]

As carbon credits are the underlying commodity for some futures contracts listed on CFTC designated contract markets (DCMs), the CFTC has the authority to enforce and regulate said DCMs and any trading that happens in those markets. In particular, the CFTC has anti-fraud and anti-manipulation enforcement powers that allow the agency to monitor any violations in carbon markets.[6]

In recent years, the CFTC has been calling for greater scrutiny of voluntary carbon markets, because they operate outside of government oversight. The potential for wrongdoing in these new and unregulated markets is huge–meaning whistleblowers are an essential part to ensuring CMs operate honestly and ethically as intended.

How do you Blow the Whistle on Carbon Markets-Related Wrongdoing?

The Commodity Exchange Act (CEA) is the foundational law that the CFTC operates on. Established in 1936, it sets guidelines for businesses regarding commodities, derivatives, and futures trading. It also gives the CFTC the power to pursue violations of market manipulation and other forms of fraud. While the CEA is broad, the following are some types of potential misconduct related to CMs that you could blow the whistle on:[7]

• Manipulative and wash trading, or other violations of the CEA in CM futures contracts
• Fraud in the underlying spot markets related to ghost (a/k/a illusory) credits listed on carbon market registries
• Double counting, or other fraud related to carbon credits
• Fraudulent statements relating to material terms of the carbon credit, including, but not limited to: quality, quantity, additionality, project type, methodology substantiating the emissions claim, environmental benefits, the permanence or duration, or the buffer pool
• Manipulation of tokenized carbon markets

If you believe you have information pertaining to CFTC violations in carbon markets, the first step in blowing the whistle is to consult an experienced whistleblower attorney or whistleblower law firm. While CFTC whistleblower claims differ from False Claims Act-related claims in that you do not file a lawsuit against the party that has committed fraud, you may still enlist the services of an attorney to assist with the following:[8]

• Drafting the complaint in a manner that is most palatable to the CFTC
• Potentially staying anonymous from start to finish with the use of CFTC whistleblower counsel
• Preparing forms and disclosures to be filed with the SEC or CFTC Whistleblower Office, as well as preparing you for any interview that will be conducted
• Interfacing between the SEC or CFTC Whistleblower Office, the whistleblower, and the expert witnesses for the duration of the investigation, which may require several years to reach a conclusion

Additionally, the CFTC will pay monetary awards to whistleblowers if the enforcement action from the original information provided results in $1 million or more in monetary sanctions; the CFTC whistleblower program also has several confidentiality and anti-retaliation practices designed to protect whistleblowers who come forward. This program only applies to whistleblowers who voluntarily provide original information to the CFTC regarding potential violations, but it is a powerful incentive to do the right thing.[9]

While whistleblowers are typically current or former employees with “insider” information, some victims of fraud or market participants may also be eligible to become whistleblowers. If you see something suspicious, you should speak with a CFTC whistleblower law firm to understand your rights. Don’t let going green mean the green is going to the pockets of the economic abusers instead of cleansing the environment. Do the right thing, go green for the environment, and perhaps there will incidentally be some green as a CFTC whistleblower award, but in any event doing the right thing, is it’s own purification.

[1] https://www.whistleblower.gov/system/files/2023/06/1687294118/06.20.23%20Carbon%20Markets%20WBO%20Alert.pdf

[2] https://www.investopedia.com/carbon-markets-7972128

[3] Id.

[4]  Id.

[5] https://www.investopedia.com/terms/c/cftc.asp

[6] Id.

[7]https://www.investopedia.com/terms/c/cea.asp#:~:text=The%20Commodity%20Exchange%20Act%20regulates,and%20environmental%20markets%2C%20and%20technology.

[8] https://waterskraus.com/practice-areas/qui-tam-whistleblower/sec-cftc-fraud/#1450707400034-30b1c332-f6b3

[9] https://www.whistleblower.gov/system/files/2023/06/1687294118/06.20.23%20Carbon%20Markets%20WBO%20Alert.pdf