Daren Li Sentenced to 20 Years in $73M Crypto Scam

Feburary 11, 2026

In a striking development that underscores the escalating risks in the digital asset space, the U.S. Department of Justice has secured a significant victory against international cryptocurrency fraud. On February 9, 2026, Daren Li, a 42-year-old dual national of China and St. Kitts and Nevis, was sentenced in absentia to 20 years in prison for his role in a massive conspiracy that defrauded victims of over $73 million through elaborate cryptocurrency investment schemes. This case, prosecuted in the Central District of California, highlights the sophisticated tactics employed by transnational criminal networks and serves as a stark reminder for investors navigating the volatile world of digital assets.

Li pleaded guilty in November 2024 to conspiring to launder funds obtained from these scams, admitting to directing co-conspirators in opening U.S. bank accounts under shell companies to receive and convert victim funds into virtual currency. The operation, originating from scam centers in Cambodia, targeted American victims through unsolicited social media interactions, phone calls, text messages, and even online dating platforms.

Perpetrators built trust by fostering phony professional or romantic relationships via encrypted apps, then steered victims toward spoofed websites mimicking legitimate cryptocurrency trading platforms. In some variations, scammers posed as tech support representatives, convincing individuals to wire funds or transfer cryptocurrency to resolve fabricated computer issues. This methodical approach, often referred to as pig butchering in industry parlance, gradually lured victims into investing larger sums under the promise of high returns, only to vanish once the funds were secured.

The scale of the fraud is staggering, with at least $73.6 million deposited into accounts linked to Li and his associates, including $59.8 million funneled through U.S. shell entities. Li’s sentence, the statutory maximum for money laundering conspiracy, also includes three years of supervised release.

However, Li remains a fugitive after removing his electronic monitoring device and fleeing in December 2025. He is the first among the defendants directly involved in handling victim funds to be sentenced, while eight co-conspirators have already pleaded guilty. This prosecution forms part of broader efforts by the Justice Department’s Criminal Division to dismantle global scam operations, involving collaborations with agencies like the U.S. Secret Service, Homeland Security Investigations, and international partners such as the Dominican National Police.

This case is emblematic of the vulnerabilities inherent in the cryptocurrency ecosystem. The integration of advanced technology with age-old confidence tricks allows criminals to operate across borders with relative impunity, exploiting the pseudonymous nature of blockchain transactions to obscure fund trails. Money laundering through virtual currencies, as executed here, not only conceals the illicit origins of funds but also complicates recovery efforts for victims. Federal authorities have made strides in addressing these challenges. Yet, the persistence of such schemes demands heightened vigilance from both regulators and market participants.

This sentencing echoes themes explored in prior discussions on our site, such as the mechanics of pig butchering schemes, where we detailed how fraudsters cultivate long-term deceptions to extract investments. Similarly, our analysis of cross-border pig butchering connects these tactics to networks linking China and U.S. victims, providing deeper insights into the geopolitical dimensions of these crimes. For those interested in international enforcement actions, our coverage of INTERPOL’s Operation HAECHI IV illustrates collaborative efforts against cyber-enabled scams, including voice phishing and romance frauds that mirror elements of Li’s operation.

Investors can draw critical lessons from this debacle to safeguard their assets. First, verify the legitimacy of any investment platform by checking for regulatory registrations with bodies like the SEC or the Commodity Futures Trading Commission. Be wary of unsolicited contacts promising guaranteed returns, a hallmark of fraudulent schemes. Utilize tools such as blockchain explorers to trace transaction histories and avoid platforms that pressure for immediate fund transfers.

In cases of suspected fraud, promptly report to the Internet Crime Complaint Center at ic3.gov, as early intervention can aid in asset recovery. Our firm’s whistleblower programs resource offers guidance on how individuals can report violations to agencies like the SEC or CFTC, potentially qualifying for rewards while contributing to market integrity.

As cryptocurrencies have gained mainstream adoption, lawmakers must balance innovation with protection against exploitation. Recent actions by the CFTC, such as those discussed in our article on CFTC Ends 2 Crypto Advisories, signal a maturing regulatory framework that adapts to market developments. On our companion site, gdowd.law, we have examined related enforcement trends, including the United Nations report on cryptocurrency’s role in money laundering, which highlights the intersection of digital assets with organized crime.

In conclusion, Daren Li’s sentencing marks a pivotal step in holding perpetrators accountable, but it also illuminates the ongoing battle against sophisticated fraud in the digital economy. By staying informed and exercising caution, investors can mitigate risks in this dynamic field. For personalized legal advice on cryptocurrency matters or fraud recovery, consider scheduling a consultation through our contact page. As the landscape evolves, proactive measures will be key to fostering a secure environment for digital asset participation.

The Department of Justice’s statement can be found here.

The post “Daren Li Sentenced to 20 Years in $73M Crypto Scam” first appeared on DigitalAsset.Law on February 11, 2026.

SEC 2026 Tokenized Securities Guidance Explained

January 29, 2026

On January 28, 2026, the Securities and Exchange Commission issued an important statement clarifying how federal securities laws apply to tokenized securities. This guidance, released by the Divisions of Corporation Finance, Investment Management, and Trading and Markets, underscores that the format of a security whether traditional or tokenized does not alter its regulatory obligations.

At its core, the statement defines a tokenized security as follows:

[A] financial instrument enumerated in the definition of “security”[4] under the federal securities laws that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.

Crypto assets here refer to any digital value recorded on such ledgers, while tokenization involves creating these digital representations of assets. The SEC emphasizes that tokenized securities typically arise in two ways: through issuer-sponsored models where the issuer directly tokenizes the security, or third-party models where unaffiliated entities create tokenized versions.

Importantly, the underlying economic reality determines the instrument’s status, not its digital wrapper. This means stock tokenized on a blockchain remains equity, subject to the same registration requirements unless an exemption applies.

Issuer-sponsored tokenized securities involve an issuer creating a security in the form of a crypto asset using distributed ledger technology (DLT).

In the primary model, the issuer (or its agent) integrates DLT directly into the master securityholder file—the official record of ownership. Transfers of the tokenized crypto asset on the blockchain automatically update this onchain master file, which functions as an onchain database. The issuer combines onchain data (e.g., wallet addresses, quantities) with offchain details (e.g., holder names and addresses) for complete recordkeeping. A single security class may be issued in both tokenized and traditional formats, with holders able to convert between them.

Importantly, the format (onchain vs. offchain) does not alter federal securities law obligations: registration requirements under the Securities Act, definitions such as “equity security,” and other rules apply equally regardless of issuance method. However, tokenized versions may constitute a distinct class if rights differ materially; substantially similar rights and privileges may classify them as the same for certain regulatory purposes.

An alternative approach issues the security offchain while providing a separate crypto asset to holders. Here, the crypto asset carries no direct security rights and does not form part of the master file. Instead, transferring the token notifies the issuer to update the offchain master record, enabling indirect onchain-facilitated transfers while keeping official ownership offchain.

Third-party-sponsored tokenized securities involve unaffiliated entities tokenizing securities issued by others, using models that differ from direct issuer-sponsored tokenization. The resulting crypto assets may or may not replicate the rights, obligations, or benefits of the underlying security, and holders face additional risks (e.g., third-party bankruptcy) not present with direct ownership.

Two primary models exist:

Custodial Tokenized Securities (e.g., Tokenized Security Entitlement) A third party holds the underlying security in custody and issues a crypto asset representing a security entitlement—an indirect interest in the held asset. The entitlement can be recorded using distributed ledger technology (DLT) integrated into the third party’s systems, so transferring the crypto asset updates the entitlement record onchain. Alternatively, records remain offchain, with onchain transfers used to sync and update the offchain database. The format (crypto or traditional) does not alter federal securities law applicability.

Synthetic Tokenized Securities The third party issues its own crypto asset providing synthetic (indirect) exposure to the underlying security, without any direct obligation from or rights against the original issuer.

• Linked Security: A third-party-issued security (e.g., structured note as debt or exchangeable stock as equity) whose value or returns track the referenced security or related events. It functions like issuer-sponsored tokenized assets but offers only economic linkage.
• Security-Based Swap : A tokenized swap providing synthetic exposure to a single security, narrow-based index, or issuer-related events (per Exchange Act §3(a)(68) and CEA definitions). It typically conveys no equity, voting, or informational rights. Sales to non-eligible contract participants require Securities Act registration and exchange trading unless exempt. The crypto asset mirrors issuer-sponsored forms but faces distinct regulatory rules.

Linked securities and security-based swaps are economically similar, but security-based swaps trigger additional regulations (e.g., counterparty limits). Classification depends on whether the instrument qualifies as a “swap” and meets security-based swap criteria—or falls under exclusions (e.g., certain notes, options, or securities under the Securities Act/Exchange Act). Economic substance, not labeling, governs the determination.

Overall, this statement reinforces that innovation must fit within established frameworks. Tokenization does not exempt securities from disclosure, registration, or anti-fraud provisions.

The SEC’s statement can be found here.

The post “SEC 2026 Tokenized Securities Guidance Explained” first appeared on DigitalAsset.Law on January 29, 2026.

U.S. Seeks Forfeiture of $5.68M USDT in Pig Butchering Scam

January 27, 2026

The United States filed a verified civil forfeiture complaint (Case No. 2:26-cv-00087) in the District Court for the Western District of Pennsylvania on January 15, 2026, seeking forfeiture of 5,680,000 USDT tokens held in virtual currency address 0x7f6Ed26BB1488D1b420E10D722ef8bDf7D845B31, now in US Marshals Service (USMS) custody (Compl. at p. 1). The action proceeds under 18 U.S.C. §§ 981(a)(1)(A), 981(a)(1)(C), 981(b), 982(a)(1), 982(a)(2), and 853(f), asserting the tokens are “property involved in money laundering in violation of 18 U.S.C. § 1956 and proceeds of wire fraud in violation of 18 U.S.C. § 1343” (Compl. at p. 2, 13).

The case arises from an FBI investigation (February–July 2025) into a pig butchering scam—an investment fraud where perpetrators gradually groom victims via romance or trust-building before stealing cryptocurrency investments (Compl. at footnote 1, p. 2). It centers on Pennsylvania resident A.T., who lost approximately $585,000 (later listed as $584,000) (Compl. at p. 2, 6).

Contact began with a misdirected text (“Emily make sure you go to grandma’s party”) in February 2025, shifting to Telegram with “Miranda Lopez.” Lopez built confidence, urged secrecy (“I hope you can keep this secret, do not disclose the information that you and I trade…”), and directed A.T. to a fraudulent domain for fake trading and a Coinbase account (Compl. at p. 3–4).

A.T. transferred ~$25,000 (April 10, 2025) and ~$242,000 (242,209.53 USDC, May 10, 2025), totaling $267,000 (Compl. at p. 4). The platform displayed illusory profits ($2.685 million), but withdrawals demanded fees: $232,000 (paid June 10), then $320,000 for “insider trading” (partial payments $50,000 and $35,000) (Compl. at p. 4–5). A.T. reported the scam after realizing the fraud. Blockchain tracing showed A.T.’s funds laundered through multiple addresses, converted (e.g., USDC to USDT), and deposited into Address 74bf (0xC1B68434D0Ef9A78E7f62e3b9850B70B3d0174bf), holding 5,680,000 USDT as of September 15, 2025 (Compl. at p. 5, 7). Detailed transaction flows (with diagrams, Compl. at p. 8–11) depict pooling: e.g., A.T.’s portion combined with funds from M.D., J.E., R.W., G.A., G.T., and others, yielding deposits like 1,000,000 USDT into Address 74bf (Compl. at p. 11, ¶32).

Reverse tracing identified at least 19 additional U.S. victims, confirmed via FBI interviews or IC3 complaints, with total estimated losses of $18,520,000 (victim chart, Compl. at p. 6). Schemes shared hallmarks: misdirected texts, encrypted apps, fake relatives with “profitable” tips, legitimate exchange use, fraudulent domains showing bogus profits, withdrawal blocks, and demands for taxes/fees (Compl. at p. 6–7).

Of the 5,680,000 USDT, ~2,495,000 traced to identified victims and ~991,000 to Huione Pay (Cambodia-based, flagged by FinCEN in 2025 as laundering pig butchering proceeds via poor AML/KYC; designated primary money laundering concern under PATRIOT Act §311; severed from U.S. system October 14, 2025) (Compl. at p. 7, 12). Together, ~3,486,000 USDT (~61.37%) linked to illicit sources; no legitimate origins found (Compl. at p. 12–13).

On September 9, 2025, Magistrate Judge Kezia O. L. Taylor issued a seizure warrant (Mag. No. 25-1589). Tether burned the tokens upon service (September 22, 2025) and reissued them to the USMS address on January 13, 2026 (Compl. at p. 1, 13). The government seeks forfeiture, noting victim losses far exceed the seized value (~$5.68 million) (Compl. at p. 13).

Case No. 2:26-cv-00087) is pending in the District Court for the Western District of Pennsylvania.

The online case docket can be found here.

The Complaint can be found here.

The post “U.S. Seeks Forfeiture of $5.68M USDT in Pig Butchering Scam” first appeared on DigitalAsset.Law on January 27, 2026.

CFTC and SEC to Hold Event on Crypto Harmonization

January 22, 2026

SEC – CFTC Harmonization: U.S. Financial Leadership in the Crypto Era

Location: CFTC Headquarters Conference Center Three Lafayette Centre 1155 21st Street N.W. Washington, D.C. 20581 

When: Tuesday, January 27 10:00 am – 11:00 am ET

Full Press Release Here

The post “CFTC and SEC to Hold Event on Crypto Harmonization” first appeared on DigitalAsset.Law on January 22, 2026.

Chair Atkins Describes the SEC Approach to Digital Assets

November 14, 2025

On November 12, 2025, SEC Chairman Paul S. Atkins delivered a speech at the Federal Reserve Bank of Philadelphia, detailing the agency’s strategy for digital assets under “Project Crypto.” Atkins highlighted that Project Crypto extends the foundational efforts of Commissioner Hester Peirce, whose Crypto Task Force advocates for regulations based on economic realities rather than hype or apprehension. He commended Peirce’s dedication and their collaborative history, underscoring her pivotal role in advancing these reforms.

The speech revolved around three key themes: establishing a transparent token taxonomy, applying the Howey test to acknowledge that investment contracts can terminate, and exploring real-world impacts on creators, brokers, and investors.

Atkins strongly endorsed Congressional initiatives to legislate a holistic crypto market structure, positioning the SEC’s work as supportive rather than overriding. He noted productive partnerships with Acting CFTC Chairman Pham and nominee Mike Selig, advocating for rapid enactment of bipartisan laws to safeguard against unpredictable regulation.

Atkins lamented a decade-long haze of ambiguity surrounding whether crypto assets qualify as securities, pointing out that “crypto asset” describes technology for record-keeping and value transfer but reveals scant about legal entitlements or transactional economics, which are essential for securities classification. He contended that the majority of circulating tokens may not be securities inherently, though some may have originated in investment contract offerings. “Investment contract” should not be thought of as an indelible tag on a digital asset.

“Investment contracts can be performed and they can expire. They do not last forever simply because the object of an investment contract continues to trade on a blockchain”

Two foundational principles shape his perspective: traditional securities like stocks or bonds retain their nature irrespective of blockchain representation, and substantive economics override nomenclature. Labeling an asset as a token or NFT offers no exemption if it fundamentally pledges returns from others’ endeavors; likewise, a token’s fundraising inception does not perpetually deem it a security.

Atkins sketched a preliminary, non-comprehensive token classification. Digital commodities or network tokens escape securities designation when tied to operational, decentralized systems, deriving worth from network mechanics rather than external management. Digital collectibles, meant for gathering or utilization and embodying art, media, or trends, lack profit expectations from issuers. Digital tools, fulfilling roles like memberships or credentials, similarly evade securities status absent reliance on others’ efforts. Conversely, tokenized securities, mirroring listed financial instruments on blockchains, stay regulated as such.

Chair Atkins’ full speech can be found here.

The post “Chair Atkins Describes the SEC Approach to Digital Assets” first appeared on DigitalAsset.Law on November 14, 2025.

July 22, 2025

George Dowd contributed the article “The GENIUS Act: Key Highlights and Anticipated Impacts” to the National Law Review on July 22, 2025.

July 17, 2025

George Dowd, Esq., founding attorney of G. Dowd Law LLC, recently joined a distinguished panel discussion titled “Cryptocurrency/Digital Assets: Where Are We Now, and Where Are We Going?” The event explored critical topics in the evolving landscape of digital assets, including potential types and implications of future U.S. regulation, the distinction between securities and non-securities, anticipated litigation trends, and the pivotal role of experts in upcoming disputes.

The event took place at the Securities Experts Roundtable 2025 Annual Membership Meeting & Conference. The Securities Experts Roundtable, established in 1993, is a national association of experienced finance and investment professionals dedicated to securities and commodities dispute resolution.

Moderated by David Hinman, CFA, of Hinman Capital Services LLC, the panel featured Dowd alongside Richard Levin, Esq., of Taft Stettinius & Hollister LLP. Drawing on his over 25 years of experience in financial markets, including foreign exchange, futures, and metals, Dowd provided insights informed by his specialized expertise in cryptocurrency and digital assets. As a former board member of the Global Digital Asset & Cryptocurrency Association (2020-2021), he has advised crypto exchanges, startups, and individual participants, and testified as an expert in high-profile proceedings before bodies like the National Futures Association and FINRA.

Dowd’s participation underscored the need for balanced regulation to foster innovation while mitigating risks, leveraging his background as a frequent commentator on CNBC, Bloomberg TV, and Fox Business Network. With a J.D. from DePaul University College of Law and a B.A. in Economics from the College of the Holy Cross, Dowd continues to bridge legal and market expertise in this dynamic field.

The article “George Dowd Participates in Cryptocurrency Panel at Securities Experts Roundtable Conference” first appeared on DigitalAsset.Law on July 17, 2025.

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Crypto Task Force Remarks of SEC Chair Atkins

June 9, 2025

SEC Chairman Paul S. Atkins, in a speech titled “DeFi and the American Spirit,” linked DeFi to values like economic liberty and innovation, praising blockchains for enabling peer-to-peer crypto ownership. He criticized past discouragement of participation, welcomed recent clarifications on staking not being securities, and pushed for formal regulations. Atkins supported self-custody, cautioned against stifling innovation, and proposed an “innovation exemption” to make America the “crypto capital,” directing staff to explore rule adjustments.

Paul S. Atkins, Chairman of the SEC, delivered a speech at the Crypto Task Force Roundtable on Decentralized Finance, titled “DeFi and the American Spirit,” emphasizing the alignment of DeFi with American values such as economic liberty, private property rights, and innovation. He described blockchains as shared databases enabling ownership of crypto assets without intermediaries, using economic mechanisms like demand-based fees to encourage network participants to validate and maintain the database. This peer-to-peer model, he argued, reflects free-market principles, contrasting with traditional intermediated systems.

Atkins critiqued the previous administration’s approach, which discouraged American participation in these systems through lawsuits, speeches, and threatened regulatory actions, suggesting participants and staking-as-a-service providers might be engaged in securities transactions.

However, he welcomed the Division of Corporation Finance’s recent clarification that voluntary participation in proof-of-work or proof-of-stake networks as miners, validators, or staking-as-a-service providers is not within the scope of federal securities laws. Despite this, he noted this clarification lacks the force of law, urging the SEC to adopt formal regulations based on congressional authority to ensure legal certainty.

A significant focus was on self-custody, which Atkins described as a foundational American value extending to digital assets. He opposed the prior administration’s regulatory actions against developers of self-custodial digital wallets, asserting that engineers should not be liable under federal securities laws solely for publishing software code. He cited a court decision comparing this to holding a self-driving car manufacturer liable for a driver’s wrongdoing, such as committing a traffic violation or robbing a bank, arguing it would be irrational to sue the car company rather than the individual.

Atkins highlighted the potential of blockchain-enabled self-executing software, which operates without administration by any operator, enabling private, peer-to-peer transactions. He cautioned against allowing century-old regulatory frameworks to stifle this innovation, noting that on-chain systems have proven resilient during recent crises, unlike centralized platforms that wavered and failed. He referenced the ability of these systems to continue operating as designed pursuant to open-source code, underscoring their reliability.

Recognizing that current securities rules are premised on regulating issuers and intermediaries like broker-dealers and exchanges, Atkins acknowledged these frameworks may not fully contemplate self-executing software displacing traditional intermediaries. He has directed the SEC staff to explore whether further guidance or rulemaking is needed to enable registrants to transact with these systems in compliance with applicable law. Additionally, he is excited about the use of on-chain software by issuers and intermediaries to eliminate economic frictions, increase capital efficiency, enable new financial products, and enhance liquidity. To accommodate this, he has asked the staff to consider amendments to the SEC’s rules and regulations, ensuring they are suited for on-chain financial systems.

Finally, to fulfill President Trump’s vision of making America the “crypto capital of the planet,” Atkins has directed the staff to consider a conditional exemptive relief framework, or “innovation exemption,” allowing registrants and non-registrants to bring on-chain products and services to market expeditiously, provided they comply with specific conditions to ensure regulatory oversight. This framework would encourage developers, entrepreneurs, and firms willing to comply with certain conditions to innovate with on-chain technologies in the United States, reflecting a proactive approach to fostering innovation.

As of June 10, 2025, the SEC is actively engaging with the crypto industry through its Crypto Task Force, which has been hosting roundtables, including the recent DeFi discussion. Chairman Atkins’ speech reflects a commitment to fostering innovation in the crypto industry while ensuring regulatory clarity, with the SEC working on an ‘innovation exemption’ for on-chain products and services to encourage development within a compliant framework. This aligns with Atkins’ emphasis on distinguishing securities from non-securities.

Legislatively, the CLARITY Act, introduced on May 29, 2025, aims to overhaul digital asset regulation, expanding the Commodity Futures Trading Commission’s (CFTC) authority over digital commodity markets and defining terms like “digital commodities” and “investment contract assets.” It includes exemptions for capital raises up to $75 million over 12 months and requires issuer disclosures until blockchains are deemed “mature,” excluding DeFi from certain market structure rules . These developments suggest a coordinated effort to clarify regulations, balancing innovation with investor protection, though debates continue around developer liability and regulatory scope.

The post “Crypto Task Force Remarks of SEC Chair Atkins” first appeared on DigitalAsset.Law on June 9, 2025.

SEC Issues Protocol Staking Activity Statement

May 30, 2025

The U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a statement on May 29, 2025, clarifying the application of federal securities laws to specific crypto asset staking activities on proof-of-stake (PoS) networks.

The U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a statement on May 29, 2025, clarifying the application of federal securities laws to specific crypto asset staking activities on proof-of-stake (PoS) networks. This statement focuses on “Protocol Staking” involving “Covered Crypto Assets”—crypto assets integral to the programmatic functioning, consensus mechanisms, or technological security of public, permissionless PoS networks. The Division concludes that certain Protocol Staking Activities do not constitute the offer or sale of securities under the Securities Act of 1933 or the Securities Exchange Act of 1934, thus not requiring SEC registration or exemptions.

PoS networks use cryptography and economic mechanisms to verify transactions and secure the network without relying on trusted intermediaries. These networks operate via software protocols—computer code enforcing rules, technical requirements, and reward distributions. The consensus mechanism ensures agreement among distributed nodes (computers) on the network’s state, including ownership balances and transactions. In PoS, node operators stake Covered Crypto Assets to validate transactions and update the network’s state, earning rewards in the form of newly minted assets or transaction fees.

Staking involves locking up Covered Crypto Assets via smart contracts, which automate network transactions. These assets remain under the owner’s ownership and control, even when staked, and cannot be transferred during the lock-up period. Protocols select validators (node operators) based on random selection or criteria like the amount staked, and they include rules to deter harmful actions, such as “slashing” (forfeiting staked assets) for dishonest behavior like double-signing or validating invalid blocks. Rewards incentivize staking, enhancing network security by increasing the staked asset pool, which reduces the risk of hostile control.

The statement identifies three types of Protocol Staking Activities:

1. Self (Solo) Staking: A node operator stakes their own Covered Crypto Assets using their resources, maintaining full ownership and control. They validate transactions and earn rewards directly from the network.

2. Self-Custodial Staking with a Third Party: Owners delegate validation rights to a third-party node operator while retaining ownership and control of their assets and private keys. The node operator validates transactions, and rewards are shared, with the operator taking a fee.

3. Custodial Staking: A custodian holds the owner’s Covered Crypto Assets in a controlled digital wallet and stakes them on the owner’s behalf, either using its own node or a third-party node operator. The owner retains ownership, and the custodian does not use the assets for business purposes, lending, or speculation. Rewards are shared, with the custodian taking a fee.

Service providers may offer administrative services like slashing coverage (reimbursing losses from slashing), early unbonding (returning assets before the protocol’s unbonding period), alternate reward schedules, or aggregating assets to meet staking minimums. These services are ministerial and do not involve entrepreneurial efforts.

The Division evaluates whether Protocol Staking Activities involve securities using the “Howey test,” which defines an investment contract as an investment of money in a common enterprise with a reasonable expectation of profits from the entrepreneurial or managerial efforts of others. Covered Crypto Assets are not traditional financial instruments (e.g., stocks or bonds), so the analysis focuses on whether staking meets the Howey criteria.

– Self (Solo) Staking: Node operators stake their own assets and perform administrative tasks to validate transactions. Rewards result from their own efforts, not from third-party managerial actions, failing the “efforts of others” prong of Howey.

– Self-Custodial Staking with a Third Party: The node operator’s role remains administrative, and owners retain control. Rewards stem from the staking process, not entrepreneurial efforts, so this also does not meet Howey’s criteria.

– Custodial Staking: The custodian’s actions (holding assets, selecting node operators) are ministerial, not entrepreneurial. Owners retain ownership, and rewards are not tied to the custodian’s managerial efforts, excluding these arrangements from being securities.

– Ancillary Services: These are administrative tasks that support staking but do not involve managerial efforts, reinforcing that they do not satisfy Howey.

The Division concludes that Protocol Staking Activities—self-staking, self-custodial staking with third parties, custodial staking, and related ancillary services—do not involve securities under the Howey test. Participants in these activities do not need to register transactions with the SEC. However, this view is not definitive; specific cases may vary based on facts, and the statement does not cover other staking forms like liquid staking or restaking. For further inquiries, the Division directs stakeholders to its Office of Chief Counsel.

This statement reflects the Division’s views, not the SEC’s, and carries no legal force. It aims to provide clarity on PoS staking, balancing regulatory oversight with innovation in public, permissionless blockchain networks.

The post “SEC Issues Protocol Staking Activity Statement” first appeared on DigitalAsset.Law on May 30, 2025.

CFTC Awards 700 Thousand Dollars to Whistleblower

May 29, 2025

On May 29, 2025, the Commodity Futures Trading Commission (CFTC) announced a whistleblower award of approximately $700,000 to a single whistleblower, underscoring the critical role of whistleblowers in enforcing regulations within commodity markets, including emerging areas like digital assets.

The CFTC Whistleblower Program, established under Section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, incentivizes individuals to report violations of the Commodity Exchange Act (CEA) by offering monetary awards and protections against retaliation.
Since issuing its first award in 2014, the CFTC has granted approximately $390 million in awards, associated with enforcement actions resulting in over $3.2 billion in monetary sanctions (CFTC Whistleblower Program). Whistleblowers may receive between 10% and 30% of the monetary sanctions collected, paid from the CFTC’s Customer Protection Fund, financed entirely by sanctions from violators, not taxpayers. The program also provides confidentiality protections, ensuring the CFTC does not disclose information that could reveal a whistleblower’s identity, except in limited circumstances.

On May 29, 2025, the CFTC awarded approximately $700,000 to a whistleblower whose information prompted the opening of an investigation and described the misconduct addressed in the enforcement order (CFTC Press Release 9081-25). The whistleblower provided substantial assistance, helping the Commission conserve resources during the investigation. However, the award was reduced due to an unreasonable delay in reporting the violations and the whistleblower’s culpability, illustrating the importance of timely reporting and ethical considerations.

Brian Young, director of the Division of Enforcement, emphasized the courage required to come forward, stating, “Whistleblowers often provide the most valuable evidence about wrongdoing.” Cynthia Lie, acting director of the CFTC’s Whistleblower Office, noted, “The Whistleblower Office is committed to rewarding whistleblowers for their significant contributions in identifying fraud, manipulation, and abuse in commodity markets.” This award aligns with past significant awards, such as nearly $200 million in 2021 and over $15 million to two whistleblowers in 2023, showing the potential financial rewards for valuable information (CFTC Awards Nearly $200 Million, CFTC Grants Two Whistleblower Awards).

Whistleblowers are vital in uncovering fraud, manipulation, and other abuses in commodity markets, providing regulators with insider knowledge that might otherwise remain hidden. This is particularly relevant for digital assets, where transactions can be opaque and rapidly evolving. The CFTC’s program has seen remarkable growth, with over 1,530 tips received in the 2023 fiscal year, up from 58 in its first 18 months, highlighting its increasing importance. Whistleblowers can identify misconduct such as market manipulation, fraudulent initial coin offerings (ICOs), or schemes exploiting the nascent nature of digital asset markets.

The program offers strong protections, including confidentiality and anti-retaliation measures, crucial for encouraging individuals to report without fear of job loss or other adverse consequences. These protections are supported by legal frameworks ensuring whistleblowers can seek remedies like reinstatement, backpay, and litigation costs if retaliated against.

Filing a whistleblower complaint involves navigating complex legal landscapes, making legal representation highly beneficial. Attorneys assist in assessing the situation, weighing risks and benefits, and ensuring the complaint is filed correctly and timely.

One key benefit is protecting a whistleblower’s anonymity. The CFTC allows anonymous filings, but this requires representation by an attorney who acts as an intermediary, safeguarding the whistleblower’s identity throughout the process. Attorneys also defend against potential retaliation, such as wrongful termination or hostile work environments, by seeking legal remedies under whistleblower protection laws.

For whistleblowers in financial sectors, especially those involving digital assets, engaging an attorney with both legal expertise and deep knowledge of financial markets is crucial. Digital assets, such as cryptocurrencies and tokens, operate on blockchain technology and involve unique trading mechanisms and regulatory challenges.

Attorneys with this specialized knowledge can better interpret evidence, identify relevant legal issues, and communicate effectively with regulators navigating an evolving landscape. As the regulatory framework for digital assets develops, with overlapping jurisdictions between the CFTC and SEC, such expertise is vital for strategic positioning of the whistleblower’s information.

The $700,000 award on May 29, 2025, exemplifies the significant impact whistleblowers can have in enforcing regulations and maintaining market integrity.

• CFTC Release Number 9081-25 can be found here.
• The CFTC’s Order Determining Whistleblower Award Claim, No. 25-WB-07, can be found here.
• Visit Whistleblower.gov for more information about CFTC’s Whistleblower program.

The post “CFTC Awards 700,000 Dollars to Whistleblower” first appeared on DigitalAsset.Law on May 29, 2025.