On August 8, the Commodity Futures Trading Commission (CFTC) announced that it ordered FTX Trading Ltd. and Alameda Research LLC (together, FTX) to pay $12.7 billion in monetary relief to FTX customers and victims of FTX’s fraud. This is one of the largest CFTC enforcement actions to date.
The order charged FTX with violating the Commodities Exchange Act (CEA) and CFTC regulations. This order stems from the complaint filed against Bankman-Fried and FTX and two former executives of FTX in December of 2022. The CFTC complaint charged Bankman-Fried, CEO of FTX and co-founder of Alameda Research, with organizing a plan to commit fraud. Bankman-Fried was later sentenced to 25 years for the fraud, which consisted of misappropriating funds and defrauding investors of both FTX and Alameda.
On August 14, the CFTC Whistleblower Program posted a Notice of Covered Action (NCA) for the action, signaling that the agency is now accepting whistleblower awards for the case. Through the CFTC Whistleblower Program, qualified whistleblowers are eligible to receive between 10-30% of the funds collected in the enforcement action connected with their whistleblowing.
This massive action by the CFTC and its corresponding NCA highlight that whistleblowers can report cryptocurrency fraud to the CFTC. The CFTC may classify cryptocurrency as a commodity if it is promoted as an investment in a specific company or when individuals engage in fraudulent activities by claiming that they are investing in exclusive cryptocurrency trading systems or “farms” that promise substantial “guaranteed” returns with little-to-no risk.
In November 2023, CFTC Chair Rostin Behnam stated that he is “proud of the Division of Enforcement’s groundbreaking work in the digital asset space.”
The whistleblower program has explicitly drawn more attention to fraud, as in 2019 and 2020, they did not report having any crypto whistleblower tips, and in more recent years, have now stated that most of their tips were related to digital asset fraud.
“The majority of the tips received this year involved crypto — an area that continues to have pervasive fraud and other illegality,” said Commissioner Goldsmith Romero about the whistleblower program’s 2023 report. “With the rise of crypto, more retail customers have come under the CFTC’s jurisdiction, making even more critical the efforts of the CFTC’s Whistleblower Program.”
Although, in keeping with its confidentiality protections, the CFTC did not reveal when a whistleblower was involved in the enforcement action, the FTX enforcement action represents the CFTC’s seriousness regarding crypto fraud. The $12.7 billion sanction emphasizes how important whistleblowers can be in protecting public funds from fraud.
Moreover, on August 8, the CFTC announced that it was rewarding a whistleblower over $1 million for helping to bring about an enforcement action connected to the digital asset markets.
“Identifying unlawful conduct in the digital asset marketplace is a major priority for the CFTC, especially as digital asset scams increasingly victimize everyday Americans,” said Director of Enforcement Ian McGinley. “During the last fiscal year, digital asset cases accounted for almost 50% of the CFTC’s docket, and most whistleblower tips that year were related to digital assets.”
The substantial penalty against FTX and the recent whistleblower reward highlight the CFTC’s approach to enforcement in the digital asset space. As more of the public continues to invest in cryptocurrency, whistleblowers will continue to be essential in detecting fraud. Given the CFTC’s whistleblower program’s recent efforts, it seems clear that the agency will play an important role in regulating the United States digital asset markets.
Further Reading:
CFTC Obtains $12.7 Billion Judgment Against FTX and Alameda
