HomeFAQsCommodities FraudCan Cryptocurrency Fraud Whistleblowers Qualify for Rewards?

Can Cryptocurrency Fraud Whistleblowers Qualify for Rewards?

Cryptocurrency fraud whistleblowers who report alleged violations to regulators, such as market manipulation, money laundering, tax avoidance, or other scams (through the guise of crypto), can earn awards under various federal whistleblower reward programs.

These programs include the SEC and CFTC reward programs, the newly enhanced AML whistleblower program, and The IRS whistleblower program.

Whistleblower awards can range anywhere between 10 and 30 percent of an enforcement action of more than $1 million, or between 15 and 30 percent of an enforcement action of more than $2 million for IRS cases – depending on the quality of information and other factors.

Since 2012, the SEC and CFTC reward programs (under the Dodd-Frank Act) have paid whistleblowers more than $1 billion, with some rewards of over $1 million. Additionally, the IRS whistleblower program has rewarded whistleblowers more than $1 billion since its inception in 2007, with our firm winning one of the largest IRS rewards in history of $104 million.

Key Takeaways

  • The cryptocurrency “industry” faces an increasing amount of federal and state regulation, as it is becoming used for Ponzi schemes, market manipulation, general tax avoidance, money laundering, or other scams.
  • Those who report securities or commodities violations can receive rewards between 10 and 30 percent of an enforcement action of more than $1 million.
  • Cryptocurrency fraud whistleblowers are protected against retaliation if they hold a “reasonable belief” a law was violated. Various laws also allow victims of retaliation to receive substantial sums of money, including punitive damages in the millions of dollars.

Reward Eligibility for Cryptocurrency Fraud Whistleblowers

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.

Types of Cryptocurrency Fraud Schemes Covered

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.

Applying for Rewards

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.

Attorney Fees

Most whistleblower 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.

Additional Resources

  • December 2, 2022

    Each year the U.S. Securities and Exchange Commission (SEC) Office of the Whistleblower releases an Annual Report to Congress detailing the activities of the highly successful SEC Whistleblower Program. The annual report for the 2022 Fiscal Year (FY 2022), which ended on September 30, reveals that the SEC Whistleblower Program had a record-setting fiscal year. The SEC received a record 12,300 whistleblower tips in FY 2022 and issued 103 whistleblower awards totaling approximately $229 million. Here are some key takeaways from the report: SEC Whistleblower Program Continues Success of Record-Shattering FY 2021 “Fiscal Year (FY) 2022 continued to build on the record-breaking success of FY 2021 for the U.S. Securities and Exchange Commission’s Whistleblower Program,” the report begins. In fact, FY 2021 was not just a record-breaking year but a record-shattering one. That year, the SEC received a record 12,200 whistleblower tips and issued a record $564 million in whistleblower awards to a record 108 individuals. Over the course FY 2021, the whistleblower program issued more awards than in all previous years combined. The SEC Whistleblower Program’s Annual Report for FY 2022 shows that FY 2021 was not a fluke. In FY 2022 the SEC received a new record 12,300 whistleblower tips. It also once again issued over 100 whistleblower awards. While the overall monetary amount awarded to whistleblowers dipped, the difference can almost entirely be attributed to two $100 million-plus awards issued by the ...

  • November 28, 2022

    On November 28, the U.S. Securities and Exchange Commission (SEC) issued a $20 million whistleblower award to an individual whose disclosure contained “new and critical information that led to the success of an enforcement action,” according to the SEC. "Today’s whistleblower played a crucial role in the ultimate success of the enforcement proceeding," said Creola Kelly, Chief of the SEC’s Office of the Whistleblower. "Whistleblowers can help advance existing investigations in meaningful ways when their information saves the agency time and resources, and when their contributions allow SEC staff to better understand complicated issues." Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide the SEC with original information that leads to a successful enforcement action, are entitled to an award of 10-30% of the sanctions collected by the SEC in the case. The SEC weighs a number of factors in determining the exact percentage to award a whistleblower. In this case, the SEC “considered that the whistleblower provided significant information and continuing assistance that helped Enforcement Division staff more quickly and efficiently investigate complex issues,” according to the agency’s press release. However, according to the award order, the SEC also negatively assessed the facts that the whistleblower “was involved for a short period and at the direction of his/her supervisor in the conduct underlying part of the Covered Action” and “delayed reporting for over two years after being ...

  • November 28, 2022

    The U.S. Securities and Exchange Commission (SEC) Whistleblower Office’s Annual Report to Congress for the 2022 Fiscal Year details a record fiscal year for the agency’s highly successful whistleblower program. During the 2022 Fiscal Year, the SEC Whistleblower Program received 12,300 whistleblower tips and issued 103 whistleblower awards totaling $229 million. This was the most whistleblower tips received by the program in a fiscal year and the second-highest amount of money awarded by the program in a fiscal year. "The SEC's whistleblower program continues to be a model of success,” said whistleblower attorney Stephen M. Kohn of Kohn, Kohn & Colapinto. “Investors and taxpayers are the biggest winners. Fraudsters are the biggest losers. Congratulations to the hard working staff at the Whistleblower Office." “The significant increase in the number of whistleblower tips and awards since the program’s inception shows that the program, with its enhanced confidentiality protections, is effectively incentivizing whistleblowers to make the often difficult decision to come forward with information about potential securities-law violations,” said Creola Kelly, Chief of the Office of the Whistleblower. “Regardless of whether a whistleblower is a corporate insider, a main street investor, or an unrepresented claimant, the Commission vigorously safeguards their identity while rewarding eligible individuals who identify bad actors in our markets.” The record number of whistleblower tips received by the SEC in the 2022 Fiscal Year cover a wide-range of types of securities fraud. According to the report, ...

Frequently Asked Questions

Cryptocurrency fraud happens when an individual or group attract investors to buy into a currency, which drives the price up. Once the price has reached a peak price, the same individual or group will then sell their stake, taking a huge gain and causing the value of the currency to drop almost instantly. However, there are many types of frauds covered by the SEC and CFTC, including Ponzi schemes, market manipulation, general tax avoidance, money laundering, or other scams.

Cryptocurrency whistleblowers can report fraud and file for rewards under the SEC, CFTC, AML, or IRS whistleblower programs. They must properly file a tip that contributes to a successful enforcement action by providing regulators original, timely, and credible information.

Most cryptocurrency whistleblower attorneys work on a contingency fee basis. This means they only get paid if they help win your case. This is generally considered best practice by top attorneys, as many believe fees shouldn’t be a barrier to reporting massive frauds or schemes.