By Mathew Carr

June 30, 2023 — Futures of nature-based carbon almost doubled in June, as various regulators and programs tightened the rules surrounding voluntary carbon credits.

Nature-based futures rose as high as $2.09/ton June 30 vs a low of $1.11 on May 31 — so prices were starting from a very low base: CME

CFTC:

• Environmental Fraud Task Force: This task force will address fraud and other misconduct not only in regulated derivatives markets, but also in relevant spot markets (such as voluntary carbon credit markets), relating to purported efforts to address climate change and other environmental risks. The task force will examine, among other things, fraud with respect to the purported environmental benefits of purchased carbon credits, as well as registrants’ material misrepresentations regarding ESG products or strategies. [See CFTC Press Release No. 8723-23]

Full release:

CFTC Division of Enforcement Creates Two New Task Forces

One Team Will Address Cybersecurity and Emerging Technology, Another to Combat Environmental Fraud

June 29, 2023

Washington, D.C. — The Commodity Futures Trading Commission’s Division of Enforcement today announced it has established two new task forces. The Cybersecurity and Emerging Technologies Task Force will address cybersecurity issues and other concerns related to emerging technologies (including artificial intelligence). The Environmental Fraud Task Force will combat environmental fraud and misconduct in derivatives and relevant spot markets. The task forces are comprised of attorneys and investigators across different offices within the Enforcement Division, who will prosecute cases, serve as subject matter experts, and coordinate efforts with the CFTC’s other divisions and offices.

“We must be dynamic and proactive in protecting derivatives markets against evolving threats,” said Chairman Rostin Behnam. “Recent events that directly impacted derivatives markets highlight the concerns that cybersecurity breaches raise in our markets. Meanwhile, as more firms tout their environmental credentials and as voluntary carbon markets grow, there exists the potential for fraud and manipulation. The creation of these two task forces demonstrates the vigorous and forward-looking approach the CFTC will take to address misconduct in these critical areas.”

“When I was a federal prosecutor leading a unit focused on complex frauds and cybercrime, I saw firsthand the growth of cyberattacks, cyber-enabled financial fraud, and environmental fraud. These new task forces will address these vital topics that will only increase in importance in the future,” said Director of Enforcement Ian McGinley. “The Cybersecurity and Emerging Technologies Task force will help ensure the derivatives markets are as secure as possible and essential information — including both customer and market information — remains confidential and protected.  The Environmental Fraud Task force will focus on addressing fraud and manipulation in carbon credit markets and other forms of greenwashing, including material misrepresentations about ESG investment strategies.”

The mission of each task force is as follows:   

• Cybersecurity and Emerging Technologies Task Force: This task force will address issues in cybersecurity and involving emerging technologies including ensuring registrants have sufficient cybersecurity controls as well as controls for the protection of customer information and system safeguards more broadly; prosecuting hacks/exploits/and account intrusions performed for the purpose of manipulating commodities markets; prosecuting technology-enabled thefts of material non-public information; exploring the role that emerging technologies such as artificial intelligence and machine learning may play in violations of the Commodity Exchange Act and CFTC regulations; and ensuring that registrants adequately supervise their use of emerging technologies.
• Environmental Fraud Task Force: This task force will address fraud and other misconduct not only in regulated derivatives markets, but also in relevant spot markets (such as voluntary carbon credit markets), relating to purported efforts to address climate change and other environmental risks. The task force will examine, among other things, fraud with respect to the purported environmental benefits of purchased carbon credits, as well as registrants’ material misrepresentations regarding ESG products or strategies. [See CFTC Press Release No. 8723-23]

You can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

-CFTC-

Earlier

CFTC Whistleblower Office Issues Alert Seeking Tips Relating to Carbon Markets Misconduct

June 20, 2023

Washington, D.C. — The Commodity Futures Trading Commission’s Whistleblower Office in the Division of Enforcement issued an alert today notifying the public on how to identify and report potential Commodity Exchange Act (CEA) violations connected to fraud or manipulation in the carbon markets. Voluntary carbon markets, among other measures, can support the transition to a low-carbon economy through market-based initiatives in which high-quality carbon credits, also known as carbon offsets, are purchased and sold bilaterally or on spot exchanges. As with any market, there exists the potential for fraud and manipulation.  

“Alongside the continued growth of CFTC regulated carbon offset derivatives contracts, the agency is building upon its expertise to ensure the utility and reliability of these markets, as well as its ability to identify and pursue any potential fraud or abusive practices,” said Chairman Rostin Behnam. “Information from whistleblowers advances the Commission’s enforcement mission and, in turn, further builds integrity and trust in the carbon markets by rooting out fraud and manipulation.”

As described in the alert, the CFTC’s Whistleblower Office will work with market participants that report information related to potential fraud in the carbon markets including, but not limited to, manipulative and wash trading, “ghost” credits, double counting, fraudulent statements relating to material terms of the carbon credits, and potential manipulation of tokenized carbon markets. Individuals who submit such information through the CFTC’s Whistleblower Program may be eligible for certain confidentiality and anti-retaliation protections, as well as monetary awards if that information leads to the success of a CFTC enforcement action.

“As carbon credit markets continue to grow, we will act to foster the integrity of these markets by fighting fraud and manipulation,” said Ian McGinley, Director of the Division of Enforcement. “Whistleblowers are invaluable allies in these efforts.  We will diligently investigate all credible tips and complaints from whistleblowers relating to carbon credit markets.”

Background:

The voluntary carbon credit market is currently estimated to be $2 billion and is forecasted to grow to $250 billion by 2050, according to the Morgan Stanley Research paper Carbon Offset Market Trends and Growth 2050. Carbon credits are the underlying commodity for futures contracts that are listed on CFTC designated contract markets (DCMs). The CFTC has enforcement authority and regulatory oversight over DCMs and any trading in those markets. The CFTC also has anti-fraud and anti-manipulation enforcement authority over the related spot markets for carbon credits. The CFTC’s jurisdiction also applies to carbon allowances and other environmental commodities products that are linked to futures contracts.

About the CFTC’s Whistleblower Program

The CFTC’s Whistleblower Program was created under Section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Since issuing its first award in 2014, the CFTC has granted whistleblower awards amounting to approximately $330 million. Those awards are associated with enforcement actions that have resulted in monetary sanctions totaling more than $3 billion. The CFTC issues awards related not only to the agency’s enforcement actions, but also in connection with actions brought by other domestic or foreign regulators if certain conditions are met.

Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected. All whistleblower awards are paid from the CFTC Customer Protection Fund, which was established by Congress, and is financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from injured customers to fund the program. The CEA also provides confidentiality and anti-retaliation protections for whistleblowers.   

The CFTC’s Whistleblower Office issues Whistleblower Alerts as a way of communicating the priorities of the Division of Enforcement to the public, including potential whistleblowers and whistleblower attorneys. 

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Some thoughtful stuff on how to get the wealthy to pay for emission cuts beyond their influence: SBTi