The recent collapse of cryptocurrency exchange FTX, whose value went from $32 billion to $0 in a few weeks, has led many to call for more regulation. Some see it as a similar moment to when Enron went bankrupt after illegal accounting practices and the 2008 downfall of Lehman Brothers at the climax of the subprime mortgage crisis. These events triggered impactful Wall Street reform.
Critics call for more regulation
Senator Elizabeth Warren has long been critical since cryptocurrencies’ emergence and recently published an op-ed letter in the Wall Street Journal that asserts that FTX’s downfall shows how crypto could “take down the economy” if it is not regulated. She added that crypto’s lack of regulation was “dangerously delusional.”
She also calls upon the DOJ, SEC and Treasury to use their authority to crack down on crypto fraud to ensure that the platforms have appropriate cybersecurity and proper operational procedures that other financial entities must utilize. She adds that Congress should close the regulatory gaps that enable FTX and others to operate in a grey area.
CFTC is paying attention
Commodity Futures Trading Commission (CFTC) released its report for the fiscal year 2022. It received 1,506 tips (up from 961 in 2021). According to the report, “[t]he majority of tips received during the Period involved fraudulent misappropriation and fraudulent solicitation involving crypto/digital assets (e.g., pump-and dumps, fraudulent representations of opportunities, or refusals to honor withdrawal requests).”
The chairman of the CFTC further added in a speech in March at the Futures Industry Association’s 2022 International Futures Industry Conference that highlighted the need for whistleblowers and a global approach to tackling this issue of regulating digital asset space.
Whistleblowers can point the way
Despite the lack of financial regulation, cryptocurrency is vulnerable to whistleblowers. Crypto whistleblowers enjoy the same protections as other whistleblowers, including anonymity, and can receive between 10-30% of the penalties paid to the government. Those who voluntarily step forward to assist federal investigators meaningfully are often rewarded for their bravery and knowledge. Nevertheless, in these complex times, working with an attorney who can help whistleblowers protect their best interests is often useful.