Cryptocurrency Laws

Crypto sellers, investors, pundits, and others may still be describing crypto as “the Wild West,” meaning it’s an unregulated financial frontier. That’s not accurate. Federal regulators are policing crypto sales. But when it comes to who exactly regulates cryptocurrency, the answer is a bit more complicated than it might first seem.

The Federal Reserve, the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and the Internal Revenue Service (IRS) are all engaged in crypto-related enforcement. And there is a movement for the industry to self-police as well.

For now, the Federal Reserve doesn’t directly regulate crypto because it’s not a currency backed by the U.S. government. Instead, crypto’s value is defined by the owners themselves. However, the Fed is monitoring (and starting to regulate) how banks and other institutions under its purview manage crypto assets in their portfolios.

If crypto, such as Bitcoin, is used in the place of “flat money” (i.e., traditional currency), then regulators consider it a commodity within the jurisdiction of the CFTC.

In parallel with the CFTC’s efforts, legitimate crypto traders are trying to provide investors with more confidence by creating their own registry. The National Futures Association (NFA) now has a registry for those engaged in crypto commodities trading. However, membership is voluntary, and the NFA has no authority over those who do not choose to be members.

However, if firms sell cryptocurrencies as an investment tool, the SEC holds that the crypto is a security that falls under the Securities Act and applicable SEC rules. And if that’s the case, then the crypto sellers need to be licensed broker-dealers, the crypto sale must be registered, and the sellers must comply with all necessary disclosure requirements.

This then brings in FINRA, since it regulates securities broker-dealers—both writing and enforcing the rules they must follow. (I.e., if an investor could file a complaint with FINRA relating to a broker-dealer’s misconduct.)

No matter what regulations the crypto sale falls under, the key concern for regulators is prevention of fraud. The regulators are looking for crypto dealers who deceive investors in any way—from the asset valuation to claims that crypto coins are being mined and more.

If you’re working in a firm selling crypto that you suspect is defrauding investors, consider becoming an SEC whistleblower. The federal government is putting a priority on crypto enforcement, and the SEC is looking for crypto cases. And if your tip is successful, it may lead to a cash award.

We have years of experience representing SEC whistleblowers, coupled with an SEC Enforcement lawyer on our team and an in-depth understanding of how the SEC Whistleblower Program operates. We are here to assist whistleblowers attempt to maximize their opportunity to receive a financial bounty. For a free, confidential consultation, email us or call us today at (800) 975-4345.