CryptoFX: SEC sues to stop alleged Ponzi scheme fraudsters from thwarting whistleblowers

April 5, 2024

In March, the SEC charged seventeen defendants for their roles in a massive, $300 million crypto Ponzi scheme called CryptoFX. According to the SEC’s complaint, CryptoFX lured predominately Latino investors by promising life-changing results, with little or no risk. But instead of delivering huge returns, the individuals who ran the scheme used investors’ capital for other purposes, including commissions and bonuses, and to fund their own lifestyles.

This complaint follows the SEC’s successful emergency action in September 2022 that halted the CryptoFX scheme and charged its two main principals.

More than 40,000 investors were caught in CryptoFX’s scheme, including two potential whistleblowers. Consistent with its pattern of protecting whistleblowers, the SEC also charged one of the defendants with violating Rule 21F-17, when he promised investors their money back, “if they took back everything they had said to the SEC and other law enforcement authorities.”

This whistleblower related charge comes on the heels of the SEC’s $18 million settlement with J.P. Morgan Securities in January 2024, over allegations the investment bank impeded communication with the SEC by asking clients to sign confidential release agreements, any time they were issued a credit or settlement of $1,000 or more.

The SEC’s focus on these agreements, which precluded clients from proactively contacting the SEC, are part of its larger crackdown on the use of NDAs and other contractual provisions that restrain whistleblowers from coming forward – an issue our partner Tammy Marzigliano discussed with the Wall Street Journal late last year.  

As these cases make clear, the SEC is interested in hearing from anyone who has concerns about securities fraud, including investors. If you have concerns that someone is touting “too-good-to-be-true” investment returns, it may be a good idea to consult with an attorney about reporting your concerns confidentially or even anonymously to the SEC.

Not only will you be doing good and protecting the public interest, but you may be eligible for the SEC’s whistleblower reward program, which rewards people who come forward with high-quality original information that leads to an enforcement action. The range for awards is between 10 and 30 percent of any money collected by the SEC.

For more information on this process, contact the attorneys in our Whistleblower & Retaliation Group. All conversations with our attorneys are privileged and confidential.

(*Prior results do not guarantee a similar outcome.)