The CFTC has created an Environmental Fraud Task Force to investigate fraud and other misconduct in regulated and voluntary carbon markets. The task force will examine, among other things, fraud with respect to the purported environmental benefits of purchased carbon offsets, as well as registrants’ material misrepresentations regarding ESG products or strategies.
Carbon offsets represent carbon emission reductions or removal and are traded in either in the over‑the‑counter market or on exchanges. There are futures contracts on various types carbon offsets, many of which allow physical delivery of the offsets at settlement. The market is global and has grown to $2 billion as of 2022, with projections valuing the market at upwards of $10 billion by 2030.
Offsets are a popular tool that companies use to reduce their net greenhouse gas (GHG) emissions and live up to their environmental, social and governance (ESG) goals, as well as promises to consumers. By purchasing carbon offsets, businesses are typically financing renewable energy projects that remove GHG emissions from the atmosphere or avoid GHG emissions – such as commitments to preserve forests or the construction of facilities to capture carbon emissions – without being involved directly in these projects.
The CFTC issued a whistleblower alert seeking tips related to misconduct in carbon markets. The CFTC’s whistleblower program offers a monetary reward, not only to the victim of the fraud, but also to company insiders and any other market participant who voluntarily provides information about violations of the Commodity Exchange Act (CEA) or CFTC regulations that lead to successful enforcement. The CFTC has a robust whistleblower pragram allowing for awards of up to 30% of the fine imposed if the claim is acted upon
The CFTC is interested in:
- manipulative and wash trading or other violations of the CEA in carbon market futures contracts. Wash trading is a form of market manipulation in which an entity simultaneously sells and buys the same financial instruments, creating a false impression of market activity without incurring market risk or changing the entity’s market position. Wash trading has been deemed illegal in most jurisdictions.
- fraud in the underlying spot markets related to ghost (illusory) carbon offsets listed on carbon market registries
- double counting or other fraud related to carbon offsets. In carbon offsetting, then, double counting refers to when a carbon credit (and the climate impact it represents) is claimed by more than one entity. Double counting is when a carbon credit is claimed by more than one entity, even though no additional carbon benefit is produced.
- fraudulent statements relating to material terms of the carbon offset
- manipulation of tokenized carbon markets
JEFFREY NEWMAN IS A WHISTLEBLOWER LAWYER REPRESENTING INDIVIDUALS WITH CLAIMS IN THE SEC AND CFTC WHISTLEBLOWER PROGRAMS IN ADDITION TO FALSE CLAIMS ACT (QUI TAM) CASES IN HEALTHCARE MATTERS. HE CAN BE REACHED AT JEFF@JEFFNEWMANLAW OR BY CALLING 617-823-3217
