I am lawyer who represents whistleblowers. I also am fascinated by the worlds of cryptocurrency and blockchain technology. Increasingly, these two worlds intersect, if not collide. As anyone steeped in the fintech arena knows, blockchain has the potential to revolutionize banking and financial transactions. Unfortunately, cryptomania has resulted in numerous Ponzi-like scams, and other dubious activities such a market manipulation, money laundering, and tax evasion.
Even legitimate cryptocurrencies, like Bitcoin (BTC) and Ethereum (ETH), are frequently used for unlawful ends. Governments around the world, including India and China, have already started to heavily regulate, or even outlaw, the use of cryptocurrency. In the United States, various government agencies have investigated and brought legal actions against many crypto and blockchain projects and their teams.
As has happened in other industries, whistleblowers are the ones most likely to lead the way in cleaning up crypto. The crucial whistleblowers are people inside the business, who understand the technologies that drive it, and who, proverbially speaking, know where the bodies are buried. They are the ones best positioned to explain what is happening in this highly technical sector, and to expose the wrongdoings possibly being undertaken by people who are practicing nefarious activities within the cryptosphere.
Now for the good news. Not only can blowing the whistle be the ethically right thing to do, but also you can earn very substantial monetary rewards. Over the last 35 years, the laws of the United States have undergone what I call the “whistleblower revolution.” Both Congress (spearheaded primarily by Senator Chuck Grassley, a staunch advocate for whistleblowers) and the Executive Branch have come to recognize the incredibly valuable role that whistleblowers can play in stopping fraud and other illegal activity. And in recognition of that value, they have passed a series of laws that both protect whistleblowers, but also incentivize whistleblowing by offering monetary rewards.
This whistleblower revolution began in 1986, when the False Claims Act—which covers fraud on government programs or by government contractors—was amended to provide a series of new incentives for whistleblowing. But in the years since, these types of whistleblower reward laws have been passed covering a variety of additional areas, including securities fraud, commodities futures fraud, banking fraud, tax fraud and, most recently, money laundering. These are all areas where crypto-related wrongdoing is occurring in the here and now.
These whistleblower reward programs have paid out billions of dollars, and routinely pay multi-million-dollar rewards to individual whistleblowers. This is because, in all of the programs, the amount of the rewards is calculated as a percentage of the money recovered by the government. Whistleblowers who expose big frauds earn big rewards, and the bigger the fraud the bigger the potential reward.
Now let me turn to the details. I will start by explaining what I call the “Big Five” key concepts that apply across all the whistleblower reward programs. These are important concepts to consider in deciding whether you have information that would fall within the whistleblower reward programs, and whether pursuing a reward makes sense.
Then, I will list the four whistleblower reward programs that are most likely implicated by crypto-related wrongdoing, and for each I will give an example of how crypto-related shenanigans that we already know about would have fallen within that particular program if it had been reported by a whistleblower.
The “Big Five” Key Concepts the Apply to All of The Whistleblower Reward Programs
Key Concept #1: Follow the Process
There are many ways to blow the whistle on illegal conduct. You can call the police or the FBI. You can send a letter to a Member of Congress. You can write about it on a blog or give an interview on TV. None of those ways, however, will lead to you earning a reward.
Under all the whistleblower reward programs, the only way to preserve your right to a reward is to follow an extremely specific process for reporting the illegal conduct to the relevant government agency. In all cases, the report must be in writing, and it must follow the rules of that program. Some of those rules are about the substance of the report (what information must be included), and some of the rules are about process (the format of the report, and where and how it is submitted). In some, but not all, cases the report may be anonymous, although anonymous reporting must generally be done through an attorney so that the agency has someone to communicate with about the matter. But the key concept here is that, before you start blowing on that whistle, make sure you fully understand the processes of the particular whistleblower reward program. Failing to follow the correct process, both substantive and procedural, may cause you to forfeit your right to a reward.
Key Concept #2: Provide Original, Non-Public, Information
The reason why government agencies are willing to pay out big rewards to whistleblowers is to get information that the agencies would not otherwise know. So, all the whistleblower reward programs have some version of a requirement that the information provided by the whistleblower be “original” and not already “public.” How these requirements apply in practice is one of the murkiest and most complicated parts of this area of law because it is not always clear when information becomes “public” or when a whistleblower is the “original” source of information. But in simplest terms, you cannot learn about a fraud by reading about it in a newspaper, and then seek a reward for giving that already-public information to the government. Most successful whistleblowers come to the government with insider knowledge about something that is new to the government agency.
Key Concept #3: Do not Wait
Once you decide that you are ready to blow the whistle, do not delay. The reasons for this are many. Government enforcers are more interested in, and more likely to pursue, wrongdoing that is ongoing or very recent. They are instinctively less interested in stuff that happened years in the past. In addition, the rules of certain of the reward programs allow the agency to take the whistleblower’s speed in reporting the wrongdoing into account in deciding how much to reward; the agencies look less favorably on a whistleblower who sat on the information for a long time while more harm was done.
Finally, see Key Concept #2 above: the longer you wait, the more likely it is that someone else will disclose the same fraud to the government or make it public in some way, after which is may simply be too late to claim a reward.
Key Concept #4: Consider Your Own Level of Culpability
This should seem obvious, but you cannot commit a big fraud, turn yourself in to the government, and then expect the government to reward you for “blowing the whistle” on yourself. All the whistleblower reward programs have rules that preclude the government from giving a reward to someone who masterminds an illegal scheme.
Where things can get murkier is when a whistleblower did not plan or run the scheme but did play some more minor role in it—the “foot soldier” in the criminal enterprise, or the “cog” in the corporate machine. Sometimes, those more minor players are the best whistleblowers, because they have the most intimate knowledge of the illegal conduct. And so, minor players generally are not prohibited from receiving a reward. But this is a line-drawing exercise that will depend heavily on the particular facts of the case.
If you personally participated in the wrongdoing that you now seek to expose, you should get legal advice about how to proceed, both because you want to do your best to preserve your right to a reward, but also because, depending on your level of personal culpability, you may also have exposure to becoming a target of the very investigation you birth.
Key Concept #5: Rewards Are Based on Recoveries
In all the whistleblower reward programs, the amount of the reward is calculated as a percentage of the amount recovered by the government agency. The exact percentage in particular cases is determined by a variety of factors. But in all cases, the government must get some money first, and then the whistleblower gets a part of that money. This has two primary implications for someone considering whether to blow the whistle through one of the reward programs.
First, not all wrongdoing leads to financial recoveries by the government. In some cases, the government will respond not by seeking money from which a reward will be paid, but instead by seeking a court injunction to stop the wrongdoing, or by going after the wrongdoers under criminal law.
Second, even when the government does seek a monetary recovery from which a reward could be paid, the government must be able to collect that money. Some targets—big companies with lots of assets inside the United States—are relatively easy for the government to collect against. Other targets—for example, individuals living in other countries and without assets in the United States—are much harder. This “collection risk,” as us lawyers like to call it, is something to consider when deciding whether to blow the whistle through one of the formal reward programs.
The Four Whistleblower Reward Programs Most Likely Implicated by Cryptocurrency Wrongdoing
In the United States, we have numerous different whistleblower reward programs covering different types of unlawful conduct. Here are the four that I think are most likely to be implicated by crypto-related wrongdoing. For each, I give an example of the type of conduct that might be covered by that program.
The SEC Whistleblower Program
What it covers: Following the…