Fraud in the Crypto Industry
Over 60% of crypto-related enforcement actions brought by the SEC in 2020 and 2021 alleged fraud. From pyramid schemes to insider trading to misleading investors, whistleblowers can expose fraud and make crypto safer for everyone.
There are substantial monetary incentives for whistleblowers who expose fraud. The SEC must pay between 10% and 30% of the total monetary sanctions it collects to eligible whistleblowers who provide original information that leads to successful enforcement actions that produce over $1 million in sanctions.
In 2021 alone, the SEC imposed approximately $2.35 billion in total monetary penalties in the crypto space. The upside potential for whistleblowers with actionable information is significant. We can help whistleblowers realize it.
We can help you report these types of fraud:
- False or misleading statements to investors
- Misappropriating investor crypto or fiat for personal use
- 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
- 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.
- 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.
Money Laundering in the Crypto Industry
Crypto exchanges must have 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.
An eligible whistleblower who reports original information that leads to a successful enforcement action taken by the SEC, the CFTC, or FinCEN, against a person or business failing to comply with the Bank Secrecy Act, is entitled to up to 30% of the total monetary sanctions collected.
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
Tax Evasion in the Crypto Industry
The IRS requires taxpayers to report all income or gains from transactions in cryptocurrency to the IRS. For the most part, reporting crypto earnings is on the honor system. This includes crypto investors and the owners of crypto businesses. As a US Attorney in Texas put it after the founders of a crypto ICO were sentenced to years in prison for evading taxes on money they stole from investors, “Crypto actors are required to pay their fair share of taxes, just like everyone else.”
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.