On 2 October 2024, the Commodity Futures Trading Commission (CFTC) announced multiple actions related to fraud in the voluntary carbon credit (VCC) market, just over one year after establishing the Environmental Fraud Task Force. Specifically, the CFTC filed a complaint in federal court against the former CEO of a carbon credit project developer and, on the same day, settled charges against CQC Impact Investors LLC (CQC) and its former COO, all related to a deceptive scheme purportedly intended to reduce carbon emissions.
Although the CFTC has had at least one prior enforcement action related to the misappropriation of funds through a carbon offset program, the agency is heralding the CQC actions as the first of their kind. Chairman Behnam highlighted the CFTC’s critical role in ensuring the integrity of VCC markets by its Environmental Fraud Task Force and recently-published final guidance related to listing procedures for VCC derivatives contracts.
The CQC actions, the facts of which were admitted by CQC and its former COO, all revolve around a deceptive carbon offset project scheme involving the distribution of efficient cookstoves throughout the Global South. The settlement orders state that CQC fraudulently reported false, misleading, and inaccurate information to the carbon credit registry and validation bodies in connection with the projects, which resulted in the issuance of millions more carbon offset credits than CQC was entitled to receive. The CFTC fined CQC US$1 million and required the cancellation or retirement of VCCs sufficient to address the violative conduct.
The actions against CQC’s former executives allege intentional participation in CQC’s provision of false and misleading project information. The COO admitted the findings and entered into a formal cooperation agreement with the CFTC. The CEO, however, did not admit any wrongdoing, and thus the CFTC filed suit in federal court seeking civil monetary penalties, disgorgement of ill-gotten gains, restitution, and permanent trading and registration bans.
The US Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission announced parallel filings for related conduct.
