SEC's $300 Million Crypto Ponzi Scheme Case Includes Charges Of Whistleblower Protection Violations

Kohn, Kohn & Colapinto, LLP


Kohn, Kohn & Colapinto (KKC) is a qui tam and whistleblower rights law firm representing whistleblowers who report securities and commodities frauds, tax evasion, and violations of the Foreign Corrupt Practices and False Claims Acts. KKC won the largest-ever individual whistleblower award ($104 million) paid to UBS bank whistleblower Bradley Birkenfeld.
On March 14, the U.S. Securities and Exchange Commission (SEC) announced charges against 17 individuals allegedly involved in a $300 million crypto asset Ponzi scheme...
United States Corporate/Commercial Law
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On March 14, the U.S. Securities and Exchange Commission (SEC) announced charges against 17 individuals allegedly involved in a $300 million crypto asset Ponzi scheme, which targeted more than 40,000 predominantly Latino investors. Among the charges are allegations that one of the scheme's principles violated the Commission's whistleblower protection provisions.

According to the SEC, the Houston-based company CryptoFX LLC "purported to trade in crypto asset and foreign exchange markets for investors but was in reality a Ponzi scheme." The SEC alleges that the 17 charged individuals solicited investors with promises that CryptoFX's crypto asset and foreign exchange trading would generate returns of 15-100% but instead "used investor funds to pay supposed returns to other investors, to pay commissions and bonuses to themselves and investors, and to fund their own lifestyles."

"We allege that CryptoFX was a $300 million Ponzi scheme that targeted Latino investors with promises of financial freedom and life-altering wealth from 'risk free' and 'guaranteed' crypto and foreign exchange investments," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement. "In the end, the only thing that CryptoFX guaranteed was a trail of thousands upon thousands of victims stretching across ten states and two foreign countries."

The SEC's allegations against Gabriel Ochoa, one of the defendants, are serious. Ochoa is accused of violating SEC Rule 21F-17(a), which prohibits individuals and companies from obstructing the ability of individuals to report potential securities violations to the SEC. The SEC claims that Ochoa attempted to silence investors and dissuade them from cooperating with the SEC, even going so far as to promise to help them recover their investment if they retracted their statements to the SEC and other law enforcement authorities.

According to the SEC's complaint, two investors "asked Gabriel Ochoa when they could expect their investment returns and how they should proceed in light of the Commission's lawsuit against CryptoFX." The SEC alleges that "Ochoa told them he would help them obtain the return of their CryptoFX investment money if they took back everything they had said to the SEC and other law enforcement authorities."

In its recent efforts to enforce Rule 21F-17(a), the SEC has taken significant action. In January, it imposed a hefty $18 million sanction on J.P. Morgan for allegedly obstructing the ability of advisory clients and brokerage customers to report to the SEC through restrictive confidentiality agreements. This penalty stands as the largest ever imposed by the SEC for a Rule 21F-17(a) violation, underscoring the Commission's unwavering commitment to protecting whistleblowers.

The SEC, in addition to safeguarding the right of individuals to report potential violations, also recognizes and rewards their contributions. Through the SEC Whistleblower Program, eligible whistleblowers, those who voluntarily provide original information that leads to a successful enforcement action, can receive awards of 10-30% of the sanctions collected in the action. Whistleblowers who engage an SEC whistleblower attorney can report anonymously to the SEC, ensuring their protection.

Originally published April 2nd, 2024.

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