To become eligible for rewards under the SEC, CFTC, AML, or IRS whistleblower programs, cryptocurrency whistleblowers must properly file a tip that contributes to a successful enforcement action by providing regulators original, timely, and credible information.
- Original Information – this is information derived from your independent knowledge (facts known to you that are not derived from publicly available sources) or independent analysis (evaluation of information that may be publicly available but which reveals information that is not generally known) that is not already known by regulators. In simple terms, you cannot learn about a fraud by reading about it in a newspaper or regulator press release, and then seek a reward for giving that already-public information to the government.
- Timely Information – government enforcers are more interested in and more likely to pursue fraud, misconduct, or wrongdoing that is ongoing or very recent. They are less interested in events that happened in the past as they are harder to investigate or verify. Keep in mind, the sooner a tip is submitted, the more likely that tip will be considered “original information,” which enhances a cryptocurrency whistleblower’s chances of receiving the maximum reward percentage.
- Credible Information – cryptocurrency whistleblowers who come forward accompanied by substantial (insider) documentary evidence, are more likely to be forwarded to investigative staff for further analysis or investigation. Non-credible tips are tips making blanketed assertions, conspiracy theories, or general inferences based on market events that are less likely to be investigated. We suggest whistleblowers first get in touch with a whistleblower attorney for a free case review before submitting information to regulators.
Cryptocurrencies are not inherently considered “securities” or “commodities” governed by the SEC or CFTC. They are not also considered fiat currency by the IRS, but property, which can be treated as property and taxed accordingly.
SEC and CFTC Whistleblower Programs
The SEC or CFTC may consider a cryptocurrency a security or commodity if it is marketed as an investment in a particular company, such as in an Initial Coin Offering (ICO), or when fraudsters claim to invest funds in proprietary crypto trading systems or “farms,” which offer high-yield “guaranteed” returns with little-to-no risk. Claims such as “risk-free,” “zero risk,” “absolutely safe,” and “guaranteed profit” are hallmarks of fraud.
Other types of misconduct within the scope of the SEC and CFTC whistleblower program may include market manipulation, such as pump and dump schemes, misstatements or omissions in required disclosures, sales of unregistered securities, insider trading, Ponzi schemes, and bribery of foreign officials, which may also violate the Foreign Corrupt Practices Act, which is within the SEC’s jurisdiction.
IRS Whistleblower Program
In recent years, the IRS has also taken a stance on cryptocurrency investments, making it clear that digital currencies should be treated as property, allowing them to tax returns on crypto investments. And through its Criminal Investigations Division, the IRS can pursue money -laundering crimes committed with cryptocurrency, extending internationally to schemes that have violated U.S. laws. Cryptocurrency transactions must be reported on an individual’s tax returns, and money made from such transactions, including capital gains, is taxable.
Due to the complicated nature of schemes, we advise cryptocurrency fraud whistleblowers to contact a whistleblower attorney for a free and confidential consultation. Please learn about our intake process and then submit an intake if you believe you have a case.
Whistleblowers who would like to report violations of securities or commodities fraud anonymously must submit SEC form TCR (“Tip, Complaint or Referral”) to the SEC with the help of a whistleblower attorney.
If you choose to submit a tip without the help of an attorney, we suggest that you read the Whistleblower Handbook to learn about your rights and protections and help prepare you for the long and arduous process ahead.
Most law firms such as Kohn, Kohn & Colapinto work on a “contingency” basis, which means we agree to represent whistleblowers in exchange for obtaining a percentage of the final recovery. In these cases, our clients are not required to pay any upfront attorney’s fees and owe us nothing if we are unable to obtain a recovery or award on their behalf.