SEC Alleges Whistleblower Protection Violations in $300 Million Crypto Ponzi Scheme Case


On March 14, the U.S. Securities and Exchange Commission (SEC) charged 17 individuals with orchestrating a $300 million Ponzi scheme involving CryptoFX LLC. Among the charges are allegations that one of the principals behind the scheme violated the SEC’s whistleblower protection rules.

According to the SEC, “from May 2020 to October 2022, the 17 charged individuals from Texas, California, Louisiana, Illinois, and Florida, acted as leaders of the CryptoFX network and solicited investors by variously promising that CryptoFX’s crypto asset and foreign exchange trading would generate returns of 15 to 100 percent.”

The SEC alleges that CryptoFX raised $300 million from investors and instead of using the funds for the promised trading purposes the defendants “used investor funds to pay supposed returns to other investors, to pay commissions and bonuses to themselves and investors, and to fund their own lifestyles.”

“We allege that CryptoFX was a $300 million Ponzi scheme that targeted Latino investors with promises of financial freedom and life-altering wealth from ‘risk free’ and ‘guaranteed’ crypto and foreign exchange investments,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “In the end, the only thing that CryptoFX guaranteed was a trail of thousands upon thousands of victims stretching across ten states and two foreign countries. A scheme of that size requires lots of participants, and as today’s action demonstrates, we will pursue charges against not just the principal architects of these massive schemes, but all those who further their fraud by unlawfully soliciting victims.”

The SEC further alleges that one of the defendants, Gabriel Ochoa, violated Rule 21F-17(a) which prohibits individuals and employees from restricting the ability of whistleblowers to report misconduct to the SEC. According to the SEC, Ochoa told certain CryptoFX investors “that he would help them get their money back if they retracted everything they had previously said to the SEC staff.”

In recent months, the SEC has stepped up its enforcement of Rule 21F-17(a). A $18 million penalty against J.P. Morgan is the largest ever levied by the SEC for a violation of the rule.

The bipartisan SEC Whistleblower Reform Act, introduced in March, would among other reforms codify Rule 21F-17(a) into law.

According to Allison Herren Lee, former SEC Commissioner and currently Of Counsel at Kohn, Kohn, and Colapinto, the SEC Whistleblower Reform Act of 2023 “will help ensure that the SEC Whistleblower Program remains an indispensable tool in the Commission’s efforts to police wrongdoing and protect investors.”

National Whistleblower Center (NWC) is calling for the immediate passage of the SEC Whistleblower Reform Act. It has set up Action Alert calling on whistleblower supports to join them in urging Congress to pass the bill and protect internal corporate whistleblowers.

Join NWC in Taking Action:

Protect Internal Corporate Whistleblowers

Further Reading:

SEC Charges 17 Individuals in $300 Million Crypto Asset Ponzi Scheme Targeting the Latino Community

More SEC Whistleblower News

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