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Thursday
May092019

CFTC wants more virtual currency whistleblowers

The Whistleblower Office of the Commodity Futures Trading Commission issued an alert Thursday asking for help from whistleblowers to stop fraud and manipulation involving virtual currencies.

The CFTC pays rewards for original information that leads to a successful enforcement action with more than $1 million in penalties.

Awards are between 10 percent and 30 percent of the penalties collected in the CFTC's enforcement action and any related action by another federal agency.

Among the types of misconduct the CFTC said it wants to hear about are:

  • Pump-and-dump schemes involving virtual currencies and other virtual assets.
  • Pre-arranged or wash trading of virtual currencies, or swaps or futures contracts based on virtual currencies.
  • Virtual currency futures or option contracts or swaps traded on an unregistered domestic platform or facility.
  • Marketing virtual currencies to retail customers by unregistered persons -- even without direct evidence of fraud or manipulation.
  • Supervision failures or fraudulent conduct, such as creating or reporting fictitious trading, by virtual currency exchanges.

Bitcoin, for example, is a commodity under the CFTC-enforced Commodity Exchange Act (CEA).

"When a virtual currency is used in a derivatives contract, or if there's fraud or manipulation involving a virtual currency traded in interstate commerce, CFTC enforcement of the CEA comes into play," the agency said in the alert.

A virtual currency (as defined by the Internal Revenue Service) is "a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value."

Whistleblowers can report complaints using the CFTC's "Tip, Complaint, or Referal" form.

The reward program isn't limited to “insiders” like app developers or employees. Fraud victims or others who have witnessed misconduct can also qualify as CFTC whistleblowers.

The CFTC doesn't disclose the identity of whistleblowers and the program includes anti-retaliation protections.

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Richard L. Cassin is editor at large of the FCPA Blog.