Enforcement is alive and well, despite changes to CFTC referral policy

On May 9, 2025, President Trump signed EO 14294, “Fighting Overcriminalization in Federal Regulations.” This was an attempt to fight the perceived “overregulation” of activities in the United States by directing regulatory agencies to attribute extra weight to “specialized knowledge” of misconduct, as well as recidivism, when deciding whether to refer cases to the DOJ for prosecution. This also comes amid layoffs at the CFTC which have forced the Commission to restructure. The twenty-four individuals separated from the CFTC included enforcement personnel.

New guidance

EO 14294 directs agencies to “consider civil rather than criminal enforcement of strict liability regulatory offenses.” In turn, the CFTC has instructed its regulators to “explicitly describe” the rationale underpinning referrals for criminal enforcement. At times drawing from the EO almost verbatim, the new advisory lists the below as factors to be taken into consideration:

1. The harm or risk of harm, financial or otherwise, caused by the potential offense;
2. The potential gain to the alleged defendant that could result from the offense;
3. Whether the alleged defendant held specialized knowledge, expertise, or was licensed in an industry related to the rule or regulation at issue;
4. Evidence, if any is available, of the alleged defendant’s general awareness of the unlawfulness of his conduct as well as his knowledge or lack thereof of the regulation at issue;
5. Whether the alleged defendant is a recidivist or has otherwise engaged in a pattern of misconduct;
6. Whether the DOJ’s involvement will provide additional meaningful protection to participants in the derivatives markets.

What’s changing

Those facing enforcement actions by the CFTC and the DOJ may now face civil penalties in place of criminal penalties, including fines, injunctions, suspensions, disqualifications, monitorships, or administrative enforcement actions.

What’s staying the same

According to CFTC’s enforcement manual, it is the Director’s responsibility to use the recommendations of Division staff to “determine[] whether, when, where, and to whom a referral is made.” While the manual lists willful violations of the Commodity Exchange Act and the Commission Regulations (along with false statements, perjury, and obstruction of justice) as appropriate matters for referral, it did not detail any factors to take into account. This advisory fills that gap.

The CFTC’s signaling that it will continue to refer for criminal enforcement matters involving willful misconduct, harm to retail investors, and recidivists, is consistent with recent enforcement actions. Some of these recent matters that have involved parallel criminal investigations included:

• Digital asset fraud scheme by two individuals and two companies involved in the scheme, and a criminal action for alleged wire fraud, unlawful monetary transactions, and operating an unlicensed money transmitting business;
• Fraud and misappropriation by an investment advisory company, and a criminal action for alleged wire fraud and aggravated identity theft; and
• Fraud in connection with a commodity pool scheme and other violations of the Commodity Exchange Act and CFTC regulations, and a criminal guilty plea to conspiracy to commit securities fraud in connection with the scheme.

Notably, and consistent with the administration’s controversial national security focus, the EO states that “[n]othing in this order shall apply to the enforcement of the immigration laws.” This suggests that the White House will not afford immigrants the same benefit of a requiring the Government to prove scienter in immigration matters, and will continue to prosecute knowing and unknowing violations of immigration laws. The recent guidance reaffirms the CFTC’s past practice of referring matters for criminal prosecution when they meet certain criteria, and provides clarity to the CFTC enforcement staff who handle investigations.

Another development concerns the CFTC’s decision to transparently post the new guidance on its website. This provides clarity to the marketplace. However, this occurred despite the requirement that agencies publish such “statements of general policy” in the U.S. Federal Register, because “currently, there is no majority vote of the Commission.” Currently, the CFTC only has two of its five commissioners in place, after the former chair, Rostin Behnam, stepped down at the beginning of the year and Commissioners Summer Mersinger and Christy Goldsmith Romero resigned at the beginning of the summer. Those departures left only Acting Chair Caroline Pham and Commissioner Kristin Johnson at the helm of the agency. Both women have signaled their upcoming departures, with Pham waiting until her successor Brian Quintenz takes over. The commission cannot publish the advisory because there is no majority vote. In the face of these complications, the decision of the CFTC to publish its referral policy is a notable step toward transparency.

Key takeaways

1. Defendants who engage in willful misconduct, are repeat offenders, or cause significant harm to retail investors or other market participants, may face a criminal investigation or prosecution under the new CFTC referral policy.
2. Defendants in regulatory proceedings who may otherwise have been subject to criminal penalties may now be subject to civil or administrative penalties.
3. Reduced regulatory oversight or criminal enforcement authority do not extend to immigration matters. EO 14294 clearly omits any scienter requirements for those who violate U.S. immigration laws.
4. Predictability of the CFTC’s priorities will remain uncertain while the leadership of the CFTC is in flux.

Client considerations

With the CFTC’s commitment to continuing to robustly enforce matters related to specialized misconduct, retail investors, and recidivism, individuals and companies potentially subject to such enforcement actions should consider proactive strategies for engaging with the CFTC or other enforcement authorities. At a time when policies and priorities are evolving, leveraging our subject matter expertise in this field and the vast government experience of our partnership can best position those wishing to confidently navigate potential enforcement discussions and pave the way for mutually agreeable resolutions.

As the regulatory landscape continues to change rapidly, Hogan Lovells is here to advise you and your business. Our deep expertise with commodities regulation and enforcement matters allows us to provide clients with the right advice as they navigate legal challenges. We are available to discuss your needs and considerations in this rapidly evolving climate.

Authored by Jerrob Duffy, Gregory Lisa, Carina Tenaglia, and Toni Cross.