March 8, 2023
Mass Lawyers Weekly recently featured WLC Attorney Bob Thomas in a powerful piece about cryptocurrency fraud. The article, “Attorneys Note Rise in Cryptocurrency Whistleblowers,” appeared in the March 3rd issue. It dove into what the author deemed the “age of the crypto whistleblower[s].” The article noted that both the SEC and the CFTC have played active roles in “bringing some law and order to what has been a largely unregulated digital assets industry.” Specifically, the article highlighted a recent announcement from the CFTC’s Whistleblower Office. The Office was alerting individuals that they may be eligible for a financial reward if they provide information about fraud and the manipulation of cryptocurrency. In short, the government is searching for crypto whistleblowers.
Whistleblowers can receive between 10 and 30 percent of the sanctions collected by the SEC or CFTC (if those sanctions exceed $1 million).
But, why is the government willing to pay an award to whistleblowers?
First, it’s a long-standing successful approach to rooting out fraud. The False Claims Act, a law born out of the Civil War, has rewards for whistleblowers at its core. As Bob noted: “[t]he economic inducement is precisely designed to move the needle for people who are hesitant for whatever reason.”
Second, with financial fraud, including cryptocurrency fraud, Bob noted that victims tend to be motivated to come forward and expose the wrongdoing.
Finally, as Bob explained, having a whistleblower’s help will be considerably more efficient than using subpoenas or search warrants. Especially in this new and developing area, the whistleblower’s knowledge is critical, Bob noted:
It is an enormous investigatory advantage to have someone essentially provide you a roadmap and tell you, if you are looking for a needle in a haystack, you can skip this whole part of the barn.
Bob Thomas, Managing Member, Whistleblower Law Collaborative
It remains unclear which agency — the SEC or the CFTC — will end up as the primary regulator for crypto. For now, it is clear that both are eager to stake the claim and, as a result, are very welcoming to crypto whistleblowers. And that can mean significant payouts as well.
As former Assistant U.S. Attorney turned white collar defense counsel, David Lazarus noted, each agency wields a high degree of discretion as to what amount to award a whistleblower who has come forward and assisted the government in a financial recovery:
I think there is going to be a strange race to the top [in terms of whistleblower awards] among regulatory agencies . . . None of the potential regulatory agencies is going to want to be seen as stingy.
David Lazarus, Partner, Verrill Dana
Nor will either agency limit itself to a small subset of cases. With so many players having entered the crypto space so quickly, the field is ripe for fraud. And with agencies jockeying for position, it will not be surprising if each stakes out aggressive positions and explores a variety of types of cases.
In sum, as Bob noted, for crypto whistleblowers,
[T]he sky is almost the limit.
Bob Thomas, Managing Member, Whistleblower Law Collaborative
This is familiar territory for us at WLC. Whether “traditional” securities fraud or the “brave new world” of cryptocurrency fraud, a potential whistleblower should look for counsel who have successfully steered financial fraud claims through the SEC or CFTC programs. We have done that. Just this past year, for example, an SEC whistleblower represented by Suzanne Durrell and Bob Thomas received an award of more than $17 million.
Whistleblower Law Collaborative LLC, based in Boston, devotes its practice entirely to representing clients nationwide in bringing actions under the federal and state whistleblower laws and programs, False Claims Acts, and other whistleblower programs. We have extensive experience representing whistleblowers in False Claims Act and SEC matters.
If you are considering becoming a crypto whistleblower or are aware of other types of fraud, contact us for a free, confidential consultation.