[00:00:00] Speaker 00:
This case turns on the commission's duty

[00:00:27] Speaker 00:
unambiguous whistleblower regulations as written.

[00:00:32] Speaker 00:
For three separate reasons, any one of which independently suffices for a reversal, CFTC's failure to follow its own rules on denying Mr. Kitchen a whistleblower incentive award violates the APA and requires its final decisions to be set aside.

[00:00:50] Speaker 00:
First, the commission's direct submission rule controls this case.

[00:00:55] Speaker 00:
The plain and unambiguous text of 17 CFR 165.2 I-1 is broad and conduct-focused, consistent with the whistleblower program's design, which is to incentivize sophisticated outsiders who spot patterns of misconduct before regulators do to submit quality tips regarding their suspicions.

[00:01:21] Speaker 00:
If a whistleblower's original information is sufficiently specific, credible, and timely to cause staff to commence an investigation, and if the ensuing covered actions are based in whole or in part on conduct the tip identified, then the whistleblower is entitled to a mandatory award.

[00:01:44] Speaker 00:
The administrative record here shows that Mr. Kitchen satisfied both elements.

[00:01:50] Speaker 00:
CFTC does not dispute that the information Kitchin submitted in 2011 and 2012 was original or that it was of sufficient quality to prompt both CFTC and NFA to open an investigation and engage with Kitchin after his 2011 to 2012 submissions.

[00:02:13] Speaker 00:
That satisfies the texts and investigation requirement.

[00:02:18] Speaker 00:
Moreover, the 2014 FX settlements were based on the same collusive conduct Kitchin flagged to the agency years earlier, namely actions by the handful of banks that dominated the FX industry to abuse their market power by coordinating trading strategies and the size and direction of large trades for their own benefit.

[00:02:43] Speaker 00:
Kitchin reported collusive bank behavior that moved FX rates.

[00:02:48] Speaker 00:
He named specific banks, and he provided quantitative analyses to support his tip.

[00:02:54] Speaker 00:
That conduct nexus satisfies the text's broad in whole or in part on conduct language and requires an award.

[00:03:04] Speaker 00:
The final decisions improperly rewrote the plain text, the 165.2i1, to demand something the rule doesn't require.

[00:03:14] Speaker 00:
that Mr. Kitchen's exact information drove the particular investigation that produced the covered actions.

[00:03:22] Speaker 03:
In doing so, the committee- With your theory, you're talking about the fact that there being generalized allegations that there was some manipulation going on with respect to trading, perhaps with their timing, with the general scheme, that that should be sufficient, even though the Bloomberg article came out with a different mechanism, scheme, et cetera.

[00:03:47] Speaker 00:
That's correct, because the whistleblower program is designed to incentivize tips.

[00:03:53] Speaker 00:
Whistleblowers often don't have the complete picture of the mechanism of what's going on.

[00:03:59] Speaker 00:
What Congress wanted to incentivize when it passed the Dodd-Frank Act and created the whistleblower program

[00:04:06] Speaker 00:
was for people to come forward with suspicions as soon as they have them, not when they have the complete picture or they are able to present the full case on a platter to the agency.

[00:04:22] Speaker 00:
The idea is that they would submit their submissions

[00:04:25] Speaker 00:
to the agency, and the agency would then use its investigative resources to develop the full picture, which resulted in an enforcement action.

[00:04:32] Speaker 00:
And that's what happened here.

[00:04:34] Speaker 00:
Mr. Kitchen's tip was not generalized.

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It was very specific.

[00:04:38] Speaker 03:
It names- It may be up to the recipient to determine whether or not that information bears fruit.

[00:04:43] Speaker 03:
I mean, because you've just admitted that generalized claims, just to kind of be in line first, so to speak, you know, gets you the prize.

[00:04:51] Speaker 03:
even if that's not the information that actually is the scheme?

[00:04:55] Speaker 00:
Well, again, the plain text of the regulation is focused on conduct, not on information.

[00:05:04] Speaker 00:
And an interesting contrast is, last year this court decided the LSAC case, which was based on the IRS's whistleblower regulations.

[00:05:15] Speaker 00:
And the IRS's whistleblower regulations specifically discuss a nexus between the information that was provided by the whistleblower and the action that was taken by the IRS.

[00:05:29] Speaker 00:
CFTC's whistleblower regulations are not written that way.

[00:05:32] Speaker 00:
They talk about whether the covered actions are based on conduct that is in whole or in part the same as the conduct of the whistleblower

[00:05:46] Speaker 00:
And here, that conduct nexus is clear because, again, Mr. Kitchen reported, it wasn't generalized allegations.

[00:05:58] Speaker 00:
He had specific allegations of specific banks, provided volatility analysis showing

[00:06:06] Speaker 00:
how the banks were conspiring with each other and colluding with each other to rig the FX markets to their own advantage.

[00:06:15] Speaker 00:
Now he didn't have the mechanism entirely right.

[00:06:17] Speaker 00:
It would never have occurred to him that they were using secret chat rooms to coordinate

[00:06:23] Speaker 00:
these training strategies.

[00:06:25] Speaker 02:
Let's frame this against what CFTC said.

[00:06:28] Speaker 02:
So they essentially treated his submissions as raising one kind of specific information, specific information about misconduct by Oanda.

[00:06:38] Speaker 02:
They investigated that and they closed the investigation.

[00:06:42] Speaker 02:
And then what the CFTC says is that specific information is not the conduct on which the successful action was based,

[00:06:51] Speaker 02:
the successful action was based on a different type of information.

[00:06:56] Speaker 02:
So what's wrong about that mode of analysis?

[00:07:00] Speaker 00:
Because it looks at the conduct nexus at the wrong level of generality.

[00:07:04] Speaker 00:
The regulation talks about conduct in whole or in part.

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That's a term of art, which this court is familiar with.

[00:07:11] Speaker 00:
It's used in many settings where statutes and regulations

[00:07:17] Speaker 02:
So on the CFTC's reading, you would need to be able to show that the successful action was based in whole or in part on the specific conduct of the information about Olanda.

[00:07:33] Speaker 02:
that you provided because they're, yes.

[00:07:36] Speaker 00:
No, because Mr. Kitchen's original complaint and tip was not solely focused on Awanda.

[00:07:43] Speaker 00:
It talked about Awanda, certainly, but it also specifically mentioned how Awanda was in collusion with its

[00:07:53] Speaker 00:
counter-parties at the large banks.

[00:07:56] Speaker 00:
And he specifically identified JP Morgan and UBS, who are two of the respondents in the covered actions.

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He mentioned them as collusive counter-parties.

[00:08:06] Speaker 00:
And the focus of his, although he did mention Oanda, the gist of his tip was that the dominant market participants

[00:08:19] Speaker 00:
in the foreign currency market who are the large banks were colluding with one another to with regard to the size and direction of trades to rig the rates to their own benefit to the detriment of other market participants.

[00:08:36] Speaker 00:
And that is exactly the conduct

[00:08:39] Speaker 00:
that ended up in the covered actions.

[00:08:45] Speaker 00:
And he identified, for example, specific trading pairs of US dollars, pound sterling, Japanese yen.

[00:08:58] Speaker 00:
He identified specific

[00:09:00] Speaker 00:
trading pairs which were being manipulated and those were the same trading pairs that the commission mentioned in its in its covered actions but which were not actually described in the Bloomberg article which discussed how these chat rooms were focused on rigging the rates for currency pairs that were less commonly traded.

[00:09:26] Speaker 02:
But the bottom line is that under... You agree that that information, it needs to qualify as specific, timely, credible.

[00:09:35] Speaker 02:
And it actually sounds like your view of this appeal is you're just challenging the commission's factual determination that Mr. Kitchen's information about market manipulation generally was generalized as opposed to specific.

[00:09:50] Speaker 00:
No, I would disagree with that, Your Honor.

[00:09:53] Speaker 00:
First of all, the specific, credible, and timely, that's a standard that is used to assess the quality of the information.

[00:10:01] Speaker 00:
And if it was of sufficient quality to prompt an investigation, which is undisputed here, it passes that threshold.

[00:10:10] Speaker 00:
Then the next question is, okay, what does the conduct nexus look like?

[00:10:15] Speaker 00:
The nexus between the conduct that formed the basis of the covered action and the conduct that was reported by the whistleblower.

[00:10:26] Speaker 00:
So it's not a factual determination as to whether the tip was generalized.

[00:10:33] Speaker 00:
It's an application of the straightforward plain text of the regulation which describes

[00:10:42] Speaker 00:
how a whistleblower becomes eligible for a mandatory award.

[00:10:48] Speaker 00:
And the commission, by rewriting its own rule, which this court said in the Panhandle Eastern case and the environmental tail case, that agencies that fail to follow their own regulations violate the APA.

[00:11:04] Speaker 00:
And that's what the commission did here.

[00:11:07] Speaker 00:
They imported the significantly contributed requirement from the existing investigations rule 165.2i2, which is no bearing on this case, and interpreted 165.2i1 contrary to its plain text and underlying policy.

[00:11:28] Speaker 00:
I see I'm out of time.

[00:11:30] Speaker 00:
I've reserved two minutes for a rebuttal unless the court wants to hear from me on the derivative source argument.

[00:11:34] Speaker 00:
Thank you.

[00:11:35] Speaker 00:
Thank you.

[00:11:37] Speaker 03:
Ms.

[00:11:37] Speaker 03:
Berry.

[00:11:46] Speaker 01:
Good morning.

[00:11:47] Speaker 01:
May it please the court, Ragni Berry for the Respondent Commodity Futures Trading Commission.

[00:11:52] Speaker 01:
A petitioner is seeking a $147.5 million whistleblower award from the CFTC based on his generalized complaints of fraud in foreign currency exchange or Forex markets.

[00:12:05] Speaker 01:
But the whistleblower program is not designed to reward any and every nonspecific tip or complaint that the whistleblower submits and instead requires both that the claimant provides specific, credible, and timely original information that caused the CFTC to investigate and that the commission brought a successful enforcement action based on conduct reported in that original information.

[00:12:30] Speaker 01:
Petitioner has pointed to nothing in the record to establish that he met these requirements and the CFTC therefore requests that the court affirm the commission's denial of petitioners award.

[00:12:42] Speaker 01:
This morning I'd like to cover a few points, the first of which is that the commission, we are in agreement that there are factual determinations at issue only, no statutory determination.

[00:12:53] Speaker 01:
And so the commission's whistleblower determination should be reviewed to ensure that the commission engaged in reasoned decision making.

[00:13:01] Speaker 01:
The second is as to the point of original information.

[00:13:04] Speaker 01:
A petitioner is incorrectly focusing on the nature of his complaint or the gist of the complaint.

[00:13:12] Speaker 01:
But rule 165.2i looks to the original information that was both specifically, sufficiently specific, credible, and timely to cause the CFTC to investigate and reported the conduct that the CFTC successfully prosecuted.

[00:13:27] Speaker 01:
Neither petitioners' complaints about Awanda's conduct nor his more general allegations about fraud in the Forex market meet the standard.

[00:13:36] Speaker 02:
So what is the standard?

[00:13:37] Speaker 02:
Do you think that there needs to be a showing that the enforcement action wouldn't have been brought absent the tip?

[00:13:47] Speaker 02:
There needs to be a causal connection between the specific information and the enforcement action?

[00:13:53] Speaker 01:
That's correct.

[00:13:53] Speaker 01:
There is a causal nexus written into the role.

[00:13:58] Speaker 01:
The rule defines- What words?

[00:14:02] Speaker 01:
For starters, the rule defines what led to the successful enforcement action.

[00:14:06] Speaker 01:
So in defining led to the successful enforcement action, you already see that there's a causal connection between the information and the successful enforcement action.

[00:14:18] Speaker 01:
As noted, Petitioner is focusing both on the gist of his complaint and

[00:14:27] Speaker 01:
the true nature of the complaint and is saying so long as the CFTC open an investigation any investigation if he included in the gist of his complaint anything that overlaps with.

[00:14:42] Speaker 01:
the actions that the CFTC brought.

[00:14:43] Speaker 02:
Can I ask about, so here's a hypo.

[00:14:46] Speaker 02:
Yes.

[00:14:46] Speaker 02:
Mr. Kitchen gives extremely detailed, specific information about the exact thing that ends up in an enforcement action, but he sent it to Office A, which looked at it and didn't open an investigation and closed it.

[00:14:59] Speaker 02:
Office B, completely independently, investigates the same subject and recovers a billion dollars.

[00:15:07] Speaker 02:
Does he satisfy what's in the regulation?

[00:15:12] Speaker 01:
Well, that question was not before the commission, but I don't think so because the question is like direct overlap.

[00:15:18] Speaker 02:
He did everything he could, but there's in fact no causal connection between his submission and the enforcement action.

[00:15:26] Speaker 01:
If he doesn't meet the, if there is no causal nexus, then no, he doesn't meet it.

[00:15:30] Speaker 01:
He may have met the first part of the rule, which is that the CFTC, I don't remember whether your hypothetical says the CFTC open an investigation.

[00:15:40] Speaker 01:
He may have met that.

[00:15:42] Speaker 01:
But if if it did not prosecute based on his original information, then no, I don't think he satisfies the rule.

[00:15:50] Speaker 01:
But again, that is not that question was not before the commission.

[00:15:54] Speaker 03:
So your answer kind of depends on did he get it in the right hands like the actual office be people who were going to put the beat that specific information?

[00:16:06] Speaker 01:
Uh,

[00:16:08] Speaker 03:
Like if A doesn't tell B, he loses because B then goes off on their own and they find out about this information a different way.

[00:16:16] Speaker 01:
Perhaps, but if I may, that's not really how the offices work.

[00:16:23] Speaker 01:
Here, indeed, the record does show that his information was ultimately submitted to the benchmark investigation team, but they found it not useful.

[00:16:33] Speaker 01:
So it was about different conduct.

[00:16:36] Speaker 01:
It was about Awanda's conduct.

[00:16:37] Speaker 02:
So you've said that my hypo isn't our case, and we do try to decide cases narrowly.

[00:16:43] Speaker 02:
So what is the narrowest way of ruling for the CFTC that you would ask us to consider?

[00:16:50] Speaker 01:
The second part of the rule, rule 165, requires that the CFTC brought an action based on the original information reported by the claimant.

[00:17:01] Speaker 01:
And that original information is limited to the specific credible

[00:17:06] Speaker 01:
and timely information that caused an investigation.

[00:17:10] Speaker 01:
The cause of CFTC to open an investigation here.

[00:17:12] Speaker 01:
Nothing in the record shows, including the cases themselves, that the CFTC prosecuted the conduct that

[00:17:22] Speaker 01:
the petitioner complained of or provided in his original information with specificity.

[00:17:28] Speaker 02:
Today, petitioner is arguing that, well, he was specific because he's talking about manipulation of the foreign exchange markets and British pound sterling and the dollar specifically.

[00:17:42] Speaker 02:
And he mentions a couple of these banks.

[00:17:44] Speaker 02:
Why isn't that sufficiently specific?

[00:17:46] Speaker 01:
Well, that's not specific enough first because it's talking about at least perceived by the CFTC, reasonably perceived by the CFTC, a different market or a different part of the agency's jurisdiction.

[00:18:01] Speaker 01:
The agency has jurisdiction over benchmark rates, manipulation,

[00:18:07] Speaker 01:
and therefore prosecuted the manipulation of the benchmark rates.

[00:18:10] Speaker 01:
What he complained about was his retail transactions, pricing of retail transactions with Awanda.

[00:18:17] Speaker 01:
CFTC does not have jurisdiction over spot forex transactions.

[00:18:23] Speaker 01:
What it can do is prosecute an FCM's misconduct

[00:18:30] Speaker 01:
insofar as it involves unfair business dealings.

[00:18:34] Speaker 01:
And so that is the way, according to the declaration from the investigative team, that is the way that the CFTC read his complaint.

[00:18:44] Speaker 01:
So you have a difference in jurisdiction.

[00:18:47] Speaker 01:
You have a difference in the actual specifics of the complaint.

[00:18:52] Speaker 01:
He alleged

[00:18:57] Speaker 01:
that he was losing money.

[00:18:59] Speaker 01:
I mean, the title of his complaint was a Wanda complaint about market abuse and manipulation, total market abuse and manipulation by one of your members, a Wanda, a Wanda moved the market lower and lower, a Wanda and its counterparts.

[00:19:13] Speaker 01:
And this is where he brings up the counterparts that some of whom the CFTC prosecuted have

[00:19:18] Speaker 01:
colluded to destroy sterling in the US dollar.

[00:19:22] Speaker 01:
But none of that matched anything that the Bloomberg article reported in terms of the scheme.

[00:19:27] Speaker 01:
So we have a difference in the jurisdiction.

[00:19:29] Speaker 01:
We have a difference in the facts and the scheme.

[00:19:31] Speaker 01:
And then we have a lack of specificity as to the involvement of the counterparts.

[00:19:37] Speaker 03:
What's your position on the standard with respect to whether or not substantial evidence?

[00:19:48] Speaker 01:
The parties agree that the whistleblower determinations should be grounded in the factual record, and it should be a rational connection between the facts found and the decision.

[00:19:58] Speaker 01:
And we recognize that some courts view the question of substantial evidence as falling within an arbitrary and capricious review.

[00:20:08] Speaker 01:
Because this appeal challenges the commission's fact finding, there may be no difference between the two here.

[00:20:13] Speaker 01:
But we did note that the SEC actually has a substantial evidence standard in its statute at Section 78 Y and the CFTC does not.

[00:20:21] Speaker 01:
Regardless, we submit that the record evidence amply supports the commission's determinations here.

[00:20:27] Speaker 01:
I'd like to just add one brief note on petitioners

[00:20:35] Speaker 01:
derivative source arguments.

[00:20:37] Speaker 01:
He makes two arguments on appeal here.

[00:20:39] Speaker 01:
He waived one of those by failing to raise it before the commission.

[00:20:44] Speaker 01:
And that is an argument that the commission must have looked at three articles, not just the one Bloomberg article.

[00:20:53] Speaker 01:
And that must have prompted the CFTC to open the investigation.

[00:20:57] Speaker 01:
Not only is that not supported by the record, but the commission had no occasion to consider that.

[00:21:02] Speaker 01:
So we asked that the court find that that

[00:21:04] Speaker 01:
argument was waived.

[00:21:08] Speaker 01:
The original Bloomberg derivative source argument lacks merit because there's nothing in the record that suggests that the petitioner was actually a source for that article.

[00:21:24] Speaker 01:
One-sided email communications does somebody at Bloomberg who was not an author, those did not provide any detailed information about the conduct that the CFTC did ultimately

[00:21:34] Speaker 01:
prosecute.

[00:21:37] Speaker 02:
And one specific question, but do you know if so there were declarations from at least two folks were those disclosed to Mr Kitchen along with the preliminary decision or only with the final?

[00:21:50] Speaker 01:
I believe he sought a review of the record.

[00:21:55] Speaker 01:
and was able to view those before the final decision.

[00:21:59] Speaker 01:
Yes.

[00:21:59] Speaker 01:
For the final decision.

[00:22:00] Speaker 01:
Yes.

[00:22:01] Speaker 01:
Actually, I do have a timeline here that I came up with.

[00:22:09] Speaker 01:
But he would have had enough information to make the argument to the commission, and he didn't.

[00:22:15] Speaker 03:
To be clear, you also do not rely on our deference.

[00:22:20] Speaker 01:
There's no issue, no statutory information issue here.

[00:22:25] Speaker 01:
Unless the court has any other questions, we respectfully request that the commission's decisions be affirmed for the reasons stated today and those in our briefs.

[00:22:36] Speaker 03:
Thank you.

[00:22:37] Speaker 03:
Why don't you take two minutes, Mr. Amanat.

[00:22:43] Speaker 00:
Thank you.

[00:22:45] Speaker 00:
Let me first address the derivative source arguments.

[00:22:51] Speaker 00:
First of all, the notion that

[00:22:54] Speaker 00:
The derivative source argument with regard to the I.B.

[00:22:58] Speaker 00:
Times UK article and the second Bloomberg article as forfeited or waived is completely meritless.

[00:23:06] Speaker 00:
That argument was raised repeatedly before the commission multiple times.

[00:23:11] Speaker 00:
Those articles were submitted

[00:23:14] Speaker 00:
As early as 2016 with the supplement and was specifically argued in response to the preliminary decision, preliminary determination that.

[00:23:27] Speaker 00:
The derivative source argument.

[00:23:30] Speaker 00:
We could draw from both the Bloomberg article as well as the IB Times UK article.

[00:23:35] Speaker 00:
To answer your question, Judge Garcia, those declarations that are in the record were only issued after the final decision.

[00:23:42] Speaker 00:
They were not issued with the preliminary determination.

[00:23:49] Speaker 00:
The commission's premise, even on the commission's premise that the June 12th Bloomberg story sparked this inquiry, Mr. Kitchen qualifies in a deliberative resource rule.

[00:24:02] Speaker 00:
The final decision's principal rationale for deciding otherwise, the article didn't use the word whistleblower, is an on sequitur, which the commission hasn't even defended on appeal.

[00:24:13] Speaker 00:
confirming its arbitrariness and the record shows that Mr. Kitchen engaged specifically with the Bloomberg staff as early as 2011.

[00:24:25] Speaker 00:
The fact that the commission's final decisions didn't even mention the IB Times article

[00:24:32] Speaker 00:
or discuss it, discuss its provenance in connection with a derivative source argument is itself an indicium of arbitrariness and capriciousness because the agency failed to consider an important part of the problem.

[00:24:50] Speaker 00:
I see I'm out of time.

[00:24:53] Speaker 00:
So I would ask that the court reverse the commission's final decisions and remand for instruction of payment of the award.

[00:25:04] Speaker 00:
Thank you for your time, Your Honors.