27 June 2023. The Commodity Futures Trading Commission (CFTC) is encouraging whistleblowers to step forward and assist with their enforcement activities, the Commission announced in an alert issued last Tuesday. In the alert, the CFTC called upon insiders with knowledge of potential Commodity Exchange Act (CEA) violations related to fraud or manipulation in the carbon markets to step forward and share information. Voluntary carbon markets, as defined by the Center for Strategic & International Studies, are somewhat defined and regulated marketplaces governing the supply and demand for carbon credits. A carbon credit or carbon offset is “a tradable unit that represents one ton of greenhouse gas (GHG) emissions avoided or removed,” per the same.
Carbon markets have emerged as a growing sector; the CFTC cited a Morgan Stanley study charting the carbon-offsets market to grow from $2 billion in 2022, to $100 billion in 2030, and balloon up to to $250 billion by 2050. The CFTC is watching this rapidly growing market and is calling upon whistleblowers to be their eyes and ears in making sure market participants buy and sell carbon offsets fairly and without cheating. The specific types of fraudulent activity the CFTC is targeting, as stated in the alert, include:
- Manipulative and wash trading or other violations of the CEA in carbon market 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
The CFTC’s Whistleblower Office is actively seeking individuals with information related to CEA violations in carbon markets. Through the CFTC’s Whistleblower Program, individuals can submit information on potential violations of CEA, while eligible whistleblowers may receive anti-retaliation protections, confidentiality, and substantial financial awards if their information leads to a CEA enforcement action. This incentivizes market participants to report potential fraudulent practices that undermine the voluntary carbon markets’ integrity. Per the alert, CFTC whistleblowers can include “victims of fraud and other market participants who observe misconduct committed by others.”
Carbon markets play an essential role in achieving a low-carbon economy and combatting climate change. However, fraud and manipulation threaten the integrity of these markets. The CFTC’s Whistleblower Program aims to protect market participants, deter fraudulent activities, and prosecute offenders by incentivizing whistleblowers to report CEA violations. Market participants must understand the regulatory landscape and guidelines to identify and report potential fraudulent practices in carbon markets. By doing so, they can contribute to the integrity and success of these vital markets. As the Director of the Division of Enforcement for the CFTC said, emphasizing the Commission’s commitment to regulating the marketplace, “Whistleblowers are invaluable allies in these efforts. We will diligently investigate all credible tips and complaints from whistleblowers relating to carbon credit markets.”
If you would like to report securities, commodities, and banking fraud, you can contact attorneys at Tycko & Zavareei LLP. Eva Gunasekera and Renée Brooker are former officials of the United States Department of Justice and prosecuted whistleblower cases under the False Claims Act and FIRREA. Renée served as Assistant Director at the United States Department of Justice, the office that supervises False Claims Act and FIRREA cases in all 94 United States District Courts. Eva was the Senior Counsel for Health Care Fraud. Eva and Renée now represent whistleblowers. For a free consultation, you can contact Renée at [email protected] (tel.: 202-417-3664) or contact Eva Gunasekera at [email protected]. You can also go to Tycko & Zavareei LLP’s website for whistleblowers to learn more at www.fraudfighters.net.