CFTC Offers Big Bounty to Crypto Fraud Whistle-Blowers

By Lydia Beyoud

The CFTC is offering hefty monetary rewards to entice whistle-blowers whose tips lead to successful enforcement actions against cryptocurrency-based pump-and-dump schemes.

The Commodity Futures Trading Commission would offer whistle-blowers between 10 percent and 30 percent of any enforcement actions of $1 million or more, it said in a Feb. 15 consumer advisory.

The agency also cautioned consumers to fight the fear of missing out on the potentially lucrative, if highly volatile, cryptocurrency market. “Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes,” the CFTC said.

Cryptocurrency promoters on social media may be engaging in pump-and-dump schemes, the agency said.

“As with many online frauds, this type of scam is not new — it simply deploys an emerging technology to capitalize on public interest in digital assets,” CFTC Director of Public Affairs Erica Elliott Richardson said in a release.

The CFTC said it is already receiving complaints from customers who have lost money in pump-and-dump schemes.

Sea Change for CFTC?

The advisory comes the same day CFTC Chairman J. Christopher Giancarlo told lawmakers that the CFTC is “covering the waterfront, without any gaps” in enforcing virtual currencies market fraud or manipulation.

Policy makers should be thinking through whether or not to grant federal regulators more power to regulate spot markets for real-time cryptocurrency trading, Giancarlo said at Feb. 15 Senate Agriculture Committee CFTC oversight hearing.

If there’s a policy choice that virtual currency trading needs direct supervision, “some agency will need the resources to do it,” Giancarlo told lawmakers who asked whether the CFTC needs more authority over virtual currencies.

Granting the CFTC the authority to regulate “cash markets” for crypto trading, rather than the futures markets it now regulates, would be a “dramatic change” for the agency, Giancarlo said.

“It’s not just a funding issue,” but would require overhauling the agency’s skill set and its regulatory approach, Giancarlo told reporters after the hearing.

“It would be a real dramatic change in our function, and I think that’s something that will have to be thought about really deeply from a policy matter by this committee, by Congress, as well as by the agency,” Giancarlo said.

No federal regulator has direct authority over retail virtual currency trading. Whether that should change is “something that I think policy makers, Congress, but also us in the regulatory agencies need to put probably first and foremost in our list” of what to do next, Giancarlo said.

The CFTC doesn’t have authority to regulate spot markets for any real-time commodities trading. It can police the retail virtual currency market and other commodities markets in instances of fraud and abuse.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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