The Commodity Futures Trading Commission (CFTC) experienced record-breaking numbers in FY 2023, both in the number of whistleblower tips received and in the number of digital asset enforcement cases initiated. According to its Whistleblower Program & Customer Education Initiatives 2023 Annual Report, the CFTC whistleblower program received 1,530 whistleblower submissions. This exceeded the number of tips received in any prior fiscal year since the program’s creation in 2010. In addition, it represents a 50% increase over the number of tips received in fiscal years 2020 and 2021. The tips covered a range of activities, including market manipulation, insider trading, corruption, and fraud related to digital assets, precious metals, and forex trading. In FY 2023, the CFTC issued 7 whistleblower awards totaling $16 million.
The CFTC’s 2023 Enforcement Results reported that the CFTC initiated 96 enforcement actions in FY 2023. Of those, 47 of the actions involved digital assets, another record-setting number. The 96 actions brought in FY 2023 resulted in over $4.3 billion in penalties, restitution, and disgorgement.
CFTC’s Whistleblower Program
The CFTC is a government agency that regulates the U.S. derivatives markets. Essentially, it is tasked with protecting the public from fraud, manipulation, and abusive practices related to the sale of commodities, futures, options, and swaps. The CFTC also oversees significant sectors of fintech, including the trading of virtual currencies (such as Bitcoin) as well as the use of virtual currencies in derivative contracts.
The CFTC’s Enforcement Division investigates and prosecutes violations of the Commodity Exchange Act (CEA) and CFTC regulations. To assist in that critical effort, the CFTC established a Whistleblower Program in 2010. Whistleblowers whose tips lead to successful enforcement actions resulting in at least $1 million in monetary sanctions may receive an award of between 10-30% of the monetary sanctions collected. The Whistleblower Program has issued 41 whistleblower awards totaling $350 million since its inception.
Sampling of CFTC Cases in FY 2023
The primary violation in an overwhelming majority of the CFTC enforcement actions in 2023 was fraud. Other violations included failure to supervise, recordkeeping violations, and the misappropriation of non-public, confidential information, among other violations. Some examples of CFTC actions in 2023 are:
Binance Holdings Limited
Binance pled guilty to operating an unlicensed money service business, failing to maintain an effective anti-money laundering program, and violating the International Emergency Economic Powers Act (IEEPA). In addition, Binance will forfeit $2.5 billion and pay a criminal fine of $1.8 billion, totaling over $4.3 billion in financial penalties.
Rashawn Russell
The CFTC charged Russell with fraudulently soliciting retail investors to invest in a digital asset trading fund. Russell was also charged with misappropriating at least $1 million in investor assets.
David Carmona, Juan Arellano Parra, Moses Valdez, David Brend and Marco A. Ruiz Ochoa
The CFTC charged defendants with fraudulently soliciting hundreds of thousands of dollars from more than 170 individuals in the U.S. and other countries to supposedly trade Bitcoin and other digital asset commodities for them. They were also charged with misappropriating customer funds.
Celsius Network, LLC and Alexander Mashinsky
The defendants were charged with fraud and making material misrepresentations in connection with the operation of a digital asset-based finance platform. In addition, the CFTC charged Celsius with acting as an unregistered commodity pool operator (CPO). Mashinsky was charged with operating as an unregistered associated person of a CPO.
As companies and individuals develop new products and services utilizing digital asset commodities, they must adhere to the long-established rules prohibiting fraud in the market and comply with the registration requirements of the Commodity Exchange Act. Among the bedrock principles of the Commodity Exchange Act are the protection of customers and the integrity of the market. This case is the CFTC’s first against a digital asset lending platform, and it demonstrates the agency will not shy away from ensuring the law is enforced in the digital asset arena. Innovation does not equate to immunity from compliance with the law.
-CFTC’s Director of Enforcement Ian McGinley.
We Help Whistleblowers File Successful Claims
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, CFTC, and SEC matters. One of our recent successes includes representing a client who reported financial fraud and received a $17 million whistleblower reward.
If you are considering submitting a tip, complaint, or referral to the CFTC or SEC or are aware of other types of fraud, contact us for a free, confidential consultation.
