CRYPTO WHISTLEBLOWER
FREQUENTLY ASKED QUESTIONS

Almost anyone who is willing to voluntarily provide original information related to fraud, abuse, corruption, or misconduct is eligible to act as a whistleblower and obtain rewards and protection from the U.S. government. There are some minor exceptions that we will review with you to determine your eligibility.

No. A whistleblower often works inside the organization at which the misconduct occurs, but being a company “insider” is not essential to serving as a whistleblower. What matters is that the whistleblower discloses information derived from their independent knowledge or analysis.

There is no maximum award level. Recent years have seen whistleblowers receive substantial awards for their assistance to the government. In 2020, a whistleblower received a then-record $114 million reward for information provided to the SEC that led to successful enforcement actions undertaken by two government agencies. That record was surpassed one year later, when the CFTC awarded nearly $200 million to a whistleblower whose information led multiple successful enforcement actions. In 2023, the SEC reclaimed the record by awarding a whistleblower $279 million.

Yes. All four programs available to crypto whistleblowers provide an opportunity for the whistleblower to appeal the agency’s decision either by seeking reconsideration of a preliminary determination, or, in some cases, by removing proceedings to federal court. An experienced attorney is imperative for any whistleblower who appeals an agency’s determination. We can ensure that you are compliant with any appeals deadlines the agencies may have, and we can draw on decades of advocacy experience to craft written responses that emphasize the significance of your information and weigh toward the issuance of a larger reward.

• SEC: The SEC provides two opportunities to appeal the award determination. First, the Office of the Whistleblower will notify you of the preliminary determination of the SEC’s claims review staff, and you may then request reconsideration of the SEC’s decision as to granting or denying an award or as to the size of the award the SEC granted. Second, if the SEC reviews your request for reconsideration and denies your application for an award, you may file an appeal in an appropriate United States Court of Appeals within 30 days of the SEC’s final decision being issued.
• IRS: The IRS provides that final award decisions by the Office of the Whistleblower can be appealed to the Tax Court within 30-days of a denial.
• CFTC: Like the SEC, the CFTC allows whistleblowers to request reconsideration of the Preliminary Determination and submit a written response either (1) within 60 days of the date of the Preliminary Determination or (2), if you requested to view the record upon which the agency made its decision, then within 60 days of the Whistleblower Office making the record available to you. You can appeal a Final Order of the Commission regarding your award claim to an appropriate federal court of appeals no later than 30 days after the Final Order is issued.
• FinCEN: FinCEN allows appeals of any determination (except the determination of the amount of a reward) to the appropriate federal court of appeals.

The Dodd-Frank Act, passed by Congress in 2010, prohibits a variety of retaliation tactics and holds that employers may not discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against a whistleblower. Similarly, the Taxpayer First Act, singed into law in 2019, prohibits the discharge, demotion, suspension, threating, harassment, or discrimination against tax whistleblowers.

A whistleblower who is the victim of retaliation may bring an action in federal court against an employer (in some cases after exhausting administrative remedies).

According to FinCEN, the following types of businesses must comply with the AML, KYC, and other provisions of the Bank Secrecy Act:

• Cryptocurrency exchanges
• Peer-to-peer (P2P) exchangers
• Hosted wallets
• Crypto kiosks
• Decentralized applications (Dapps) that transmit cryptocurrency
• Anonymizing service providers (“mixers” and “tumblers”)
• Certain providers and transmitters of anonymity-enhanced cryptocurrencies
• Payment processors (which allow purchases of goods and services using crypto)
• Internet casinos that accept crypto

What types of violations to report:

• Failure to develop, implement, and maintain an effective written anti-money laundering program that is reasonably designed to prevent the business from being used to facilitate money laundering and the financing of terrorist activities. This includes:
  • verifying customer identification,
  • filing reports,
  • creating and retaining records, and
  • responding to law enforcement requests.
• Failure to file currency transaction reports (CTR’s) and suspicious activity reports (SAR’s)
• Failure to comply with the “Funds Transfer Rule” and the “Funds Travel Rule.” This includes a sending institution failing to forward to a receiving institution the name, address, and account number of a person transmitting the equivalent of more than $3,000 in cryptocurrency.
• No individual responsible to assure day-to-day compliance with the program and BSA requirements
• No training for appropriate personnel in the detection of suspicious transactions
• No independent review to monitor and maintain an adequate program
• No registration with FinCEN

In short, you have to approach the government with your information before the government asks you for information. More specifically, information is provided “voluntarily” if you provide it to the government before a request, inquiry, or demand that relates to the same subject matter is directed to you or anyone representing you by a regulatory or law enforcement agency or any other authority of the federal government.

Independent analysis,” according to the SEC, means your own analysis (whether done alone or in combination with others) that includes an “examination and evaluation of information that may be publicly available, but which reveals information that is not generally known or available to the public.” In order for a submission to qualify as “independent analysis,” the whistleblower must do more than point to publicly available information.  Information does not constitute independent analysis if the whistleblower merely directs the staff to publicly available information and states that the information itself suggests a fraud or other violations.  Rather, the whistleblower must use the publicly available materials to show important insights about the possible securities laws violations that are not apparent from the face of the materials.

• Failure to implement a KYC/AML or sanctions compliance program
• Market manipulation
• False or misleading statements to investors
• Misappropriating investor crypto or fiat for personal use
• Tax evasion
• Underreporting taxes
• Rug Pulls
• Insider trading
• Sale of unregistered securities
• Failure to disclose cybersecurity breaches
• Failure to disclose financial incentives when touting (promoting) crypto-related securities
• Operating an unregistered digital asset exchange
• Failure to file currency transaction reports (CTR’s) and suspicious activity reports (SAR’s)
• Failure to comply with the “Funds Transfer Rule” and the “Funds Travel Rule.” This includes a sending institution failing to forward to a receiving institution the name, address, and account number of a person transmitting the equivalent of more than $3,000 in cryptocurrency.

If you have additional questions about the processes and programs available to whistleblowers or you have specific questions relating to a possible whistleblowing claim, contact us today at dhf@levyfirestone.com or (773) 600-9480 (cell/Signal/WhatsApp).

Any information provided to Levy Firestone Muse in the course of our correspondence is protected under the attorney-client privilege and will not be disclosed to any third party without your express consent.

Yes. You can be eligible for a whistleblower award even if you live outside the US and/or you are not a US citizen.

Whistleblowers may receive up to 30% of the total monetary sanctions collected by the government as a result of the original information they provide. The range of awards available depends on the applicable whistleblower program.

• Internal Revenue Service (IRS) – If a whistleblower’s original information leads to a successful enforcement action by the IRS, the whistleblower will receive between 15% and 30% of the proceeds collected attributable to the information submitted by the whistleblower. The information must relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional proceeds in dispute exceed $2,000,000; and the taxpayer’s income exceeds $200,000 for at least one of the tax years in question.
• Securities Exchange Commission (SEC) – The SEC must pay between 10% and 30% of the total monetary sanctions it collects to eligible whistleblowers who provide information that leads to successful enforcement actions that produce over $1 million in sanctions. If multiple whistleblowers are granted awards in an action, the total award amount is still limited to between 10% and 30% of the amount of the monetary sanctions collected.
• Commodities Future Trading Commission – Same award limits as the SEC.
• Financial Crimes Enforcement Network (FinCEN) – An eligible whistleblower is entitled to recover between 10% and 30% of the monetary penalties recovered by the government, provided the whistleblower’s information resulted in the government recovering more than $1 million.

The government has discretion to determine the exact percentage of the funds collected within the spectrum of percentages available under the law (10-30% for the SEC and CFTC, 15-30% for the IRS, and 10-30% for FinCEN). The factors the government considers before determining an award vary by agency. In general, the following factors will weigh toward a larger award for the whistleblower:

• The significance of the information provided by the whistleblower to the success of the covered judicial or administrative action
• The degree of assistance provided by the whistleblower
• The interest of the government in deterring the violations that the whistleblower disclosed

On the other hand, the following factors may weigh against a whistleblower receiving the maximum award:

• Whether and to what extent the whistleblower actively and knowingly participated in the underlying violations
• Whether the whistleblower engaged in unreasonable reporting delay
• Whether the whistleblower interfered with the company’s internal compliance and reporting systems, such as, for example, making false statements to the compliance department that hindered its efforts to investigate possible wrongdoing

The SEC, CFTC, and FinCEN allow whistleblowers to report their information anonymously, but only if they do so through an attorney. The attorney, however, must know the whistleblower’s identity.

The IRS does not allow anonymous whistleblowing but is committed to “protect the identity of the whistleblower to the fullest extent permitted by the law. Under some circumstances, such as when the whistleblower is an essential witness in a judicial proceeding, it may not be possible to pursue the investigation or examination without revealing the whistleblower’s identity.” The IRS has stated that in such cases, it will inform the whistleblower before deciding whether to proceed.

• Price manipulation (like 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.
• False or misleading statements to investors
• Misappropriating investor crypto or fiat for personal use
• Insider trading
• Sale of unregistered securities
• Failure to disclose cybersecurity breaches
• Failure to disclose financial incentives when touting (promoting) crypto-related securities
• Rug pulls
• Operating an unregistered digital asset
• Virtual currency futures or option contracts or swaps traded on an unregistered domestic platform or facility.
• Certain schemes involving virtual currencies marketed to retail customers by unregistered persons, such as off-exchange leveraged margined, or financed commodity transactions with persons, even without direct evidence of fraud or manipulation.
• Supervision failures or fraudulent conduct (e.g., creating or reporting fictitious trading) by virtual currency exchanges.

If you know anyone using crypto to hide their income from the IRS or who has failed to report their crypto earnings to the IRS, you can blow the whistle. The IRS will award a whistleblower with between 15% and 30% of the proceeds collected and attributable to the whistleblower’s information in cases where the money owed the IRS exceeds $2 million and the taxpayer’s income exceeds $200,000.

“Original information” is information derived from your independent knowledge or independent analysis that is not already known to the government. Your information cannot be derived from publicly available sources, unless your analysis of that public information reveals information that is not generally known.

If the government received your information previously from another person, that information will not be original information unless you were the original source of the information that the other person submitted.

Some information is excluded from the definition of “original information”, such as information subject to the attorney-client privilege or information learned because you held certain titles at a company (such as an officer or director) and you learned the information from another person or through the entity’s internal reporting systems.

Crypto exchanges must implement anti-money laundering (AML) and know your customer (KYC) programs to prevent criminals from using their service to launder criminal proceeds or evade US sanctions. And not just exchanges; a wide variety of participants in the crypto space are money services businesses (MSBs) subject to the requirements of the Bank Secrecy Act.

Entities subject to AML regulations and KYC requirements include the following:

• Cryptocurrency exchanges (centralized and decentralized)
• Peer-to-peer (P2P) exchangers
• Hosted wallets
• Crypto kiosks
• Decentralized applications (Dapps) that transmit cryptocurrency
• Anonymizing service providers (“mixers” and “tumblers”)
• Certain providers and transmitters of anonymity-enhanced cryptocurrencies
• Payment processors (which allow purchases of goods and services using crypto)
• Internet casinos that accept crypto

An individual’s legal exposure is highly fact-specific, and a whistleblower is not necessarily immunized from criminal prosecution. This underscores the importance of finding qualified counsel to serve as your advocate and to evaluate risks before proceeding with the whistleblowing process.