In the wake of FTX’s collapse, a Commodity Futures Trading Commission (CFTC) Commissioner commented on the critical role whistleblowers play in the oversight of cryptocurrency fraud. CFTC Commissioner Kristin Johnson told Bloomberg “in the context of the digital-asset space, the value of having those vocal whistleblowers and tipsters is critical.”
Johnson further noted that crypto whistleblowers can report anonymously and that in regards to whistleblower award payments to crypto whistleblowers “the numbers are very big.” Through the CFTC Whistleblower Program, qualified whistleblowers, individuals who voluntarily disclose original information that leads to a successful enforcement action, are entitled to awards of 10-30% of the funds collected by the government.
The CFTC has jurisdiction over a wide-variety of types of cryptocurrency fraud, including price manipulation (like pump-and-dump schemes) involving virtual currencies, wash trading of virtual currencies, and unregistered trading of virtual currency futures. In August 2021, the CFTC posted Notices of Covered Actions for enforcement actions involving cryptocurrency fraud, including a case where the CFTC penalized five companies nearly $100 million for operating a cryptocurrency derivatives trading platform without having properly registered to do so.
On November 1, the CFTC released its 2022 Annual Report on its whistleblower program. The report details a historic fiscal year for the whistleblower program, which included a record whistleblower award and a dramatic increase in whistleblower tips.
According to the report, in fiscal year 2022, the agency received 1,506 whistleblower tips, compared to 961 received in the 2021 fiscal year. According to the report, “[t]he majority of tips received during the Period involved fraudulent misappropriation and fraudulent solicitation involving crypto/digital assets (e.g., pump-and dumps, fraudulent representations of opportunities, or refusals to honor withdrawal requests).”
On March 16, the Chairman of the CFTC, Rostin Behnam, gave the keynote address at the Futures Industry Association’s 2022 International Futures Industry Conference and spoke about the key role the agency’s whistleblower program plays in the enforcement of cryptocurrency fraud.
“With greater focus during this time of great global uncertainty on the opportunities that the digital asset infrastructure may afford bad actors, including sanctioned individuals and institutions, to bypass the law and remain anonymous, the CFTC’s Whistleblower Program becomes an increasingly important tool,” Benham said. “This too highlights the urgency for a more unified global approach to regulation in the digital asset space.”