CFTC Awards $1 Million to Whistleblower in Digital Asset Case

The Commodity Futures Trading Commission (CFTC) has awarded over $1 million to a whistleblower whose “information and assistance” led to an enforcement action in the cryptocurrency space.

“Identifying unlawful conduct in the digital asset marketplace is a major priority for the CFTC, especially as everyday Americans are increasingly victimized by digital asset scams,” Ian McGinley, Director of Enforcement at the CFTC, said in a press release.

McGinley also noted that nearly half of the CFTC’s cases in the last fiscal year were related to digital assets, with most whistleblower tips focusing on the cryptocurrency sector.

The enforcement action was based on information about “improper trading” that the CFTC didn’t know about before. According to a CFTC Whistleblower Award Determination, six claims were received, but only one was deemed crucial for the investigation.

“Claimant 1’s information was critical, causing the Division to open the investigation underlying the Covered Action,” states the document. The particulars of the case aren’t revealed, but the other five claims were either withdrawn or did not provide significant information.

“Whistleblowers have increasingly played a significant role in the CFTC’s enforcement actions in the digital assets space,” said Brian Young, Whistleblower Office Director. “Here, the whistleblower provided sufficiently specific and credible information that assisted the CFTC in bringing a successful action.”

The CFTC’s whistleblower program, which started in 2014, has paid out about $380 million to date and led to monetary sanctions totaling nearly $3.2 billion. Whistleblowers can receive between 10% and 30% of the penalties collected, as per the CFTC.

History of Crypto Enforcement

The latest award comes as the CFTC actively seeks to expand its jurisdiction over digital assets. In July testimony before the U.S. Senate, CFTC Chair Rostin Behnam argued that Bitcoin, Ethereum, and other cryptocurrencies should be considered commodities, and not securities. Securities fall under the jurisdiction of the Securities and Exchange Commission (SEC), while commodities are regulated by the CFTC.

The CFTC has taken several enforcement actions against crypto companies over the years.

In 2015, Coinflip, Inc. was charged with offering illegal off-exchange options trading in Bitcoin. In 2016 and 2018, the CFTC fined Bitfinex and Tether $75,000 and $41 million, respectively. Bitfinex was fined for offering illegal off-exchange commodity transactions, while Tether was fined for making misleading claims about the reserves backing its USDT stablecoin.

In 2020, cryptocurrency exchange BitMEX was charged with operating an unregistered trading platform and violating multiple CFTC regulations, resulting in a $100 million settlement.

In 2021 and 2022, the crackdown continued, focusing on compliance issues and fraudulent schemes. Notable cases included actions against crypto exchanges Kraken and Celsius Network. Kraken was fined $1.25 million for illegal margin retail commodity transactions, while Celsius faced charges related to fraudulent operations.

In 2023, the CFTC filed a high-profile case against Binance, the world’s largest crypto exchange, and its CEO, Changpeng Zhao. Binance was accused of willfully flouting U.S. laws, operating an unregistered derivatives exchange, and having inadequate anti-money laundering procedures. This case stands as one of the largest enforcement actions by the CFTC in the crypto space, with nearly $3 billion in penalties levied.

And just yesterday, the CFTC obtained a $12.7 billion judgment against the defunct FTX crypto exchange for fraudulent activities that caused massive customer losses.