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Tipster Who Got $200 Million Blew Whistle on Benchmark Rigging

The Commodity Futures Trading Commission logo hangs outside their headquarters in Washington, D.C. Photographer: Andrew Harrer/Bloomberg
By Bloomberg
22 Oct 2021 1

The whistle-blower who received a record $200 million award provided regulators with extensive evidence that benchmark interest rates were being manipulated -- scandals that contributed to Libor’s demise and resulted in banks paying billions of dollars in fines. 

The tipster’s attorney, David Kovel, said the individual first turned over documents and trading records to authorities in 2012, just as global watchdogs were launching investigations into the rigging of the London interbank offered rate. Kovel didn’t name the whistle-blower or where the individual worked. But the Wall Street Journal reported in May that Kovel represented a former Deutsche Bank AG executive who was in line to receive an enormous payout from the Commodity Futures Trading Commission for aiding the Libor probe.

“Manipulation of financial benchmarks enriches manipulators at the expense of market participants,” Kovel, a partner at Kirby McInerney in New York, said in a Thursday statement. “We are pleased that the CFTC has recognized that the whistle-blower deserved a substantial award.”

Libor rigging was one of the most sweeping abuses involving Wall Street to emerge in the wake of the 2008 financial crisis. Multiple banks were accused of submitting bogus rates at the direction of traders who had put positions on to profit illicitly. Major financial institutions were hit with more than $9 billion in fines, with Deutsche Bank alone paying $2.5 billion.

It’s hard to overstate the Libor’s importance as it was used as a reference rate for trillions of dollars of loans, mortgages and other financial products. Global regulators are now working to replace the tainted benchmark.

In a statement, the CFTC said the whistle-blower’s information helped the agency find direct evidence of wrongdoing as part of an already open investigation. The tip also prompted another U.S. federal regulator and a foreign agency to bring similar allegations. The CFTC, which polices the derivatives market, issues awards for help in its enforcement actions as well as those brought by other domestic or foreign regulators if certain conditions are met.

Neither the whistle-blower nor the firm accused of misconduct were identified by the CFTC, in keeping with the federal government’s policy of withholding information that could reveal a tipster’s identity. The regulator’s previous biggest award was $30 million. Including Thursday’s announcement, the CFTC has paid more than $300 million to whistle-blowers since making its first payment in 2014.

A Deutsche Bank spokesman declined to comment.

Whistle-blowers are eligible to receive between 10% and 30% of the monetary sanctions collected. The CFTC pays for the awards through a fund established by Congress, which is funded by sanctions paid to the agency. No money is taken or withheld from injured customers to fund the program.

The CFTC whistle-blower program has helped the agency bring sanctions totaling more than $3 billion, according to the statement. The new award also surpasses the record payout of $114 million given by the Securities and Exchange Commission’s in October 2020.

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  • A whistleblowers fee of between 10%-30% of the monetary sanctions collected is obviously more valuable than the commission from participating in the scheme! The whistleblower in this case did the math and realized he would make more by being a whistleblower than sticking to his participating commission AND he would remain anonymous! Not entirely kosher but clever!