Crypto Whistleblower Guide: From Pyramids to Liquidity Mining Scams

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Crypto Whistleblower Guide: From Pyramids to Liquidity Mining Scams

Cryptocurrency Fraud & Whistleblowers: A Practical Guide for 2025

As demand for cryptocurrency grows (with around 560 million people holding crypto worldwide), threats and risks are growing too. In the last few years, cryptocurrency pyramid scheme tactics, crypto fraud cases, and deceptive DeFi practices have skyrocketed. 

Last year (in 2024), scammers and hackers ran off with around $12.4 billion in assets. Fortunately, there are people who can fight back against these malicious actors: crypto whistleblowers. 

People who identify misconduct and inform the right authorities early protect countless investors and consumers from losing their assets. These are the people who fight for justice and make the crypto space more fair, reliable, and transparent. 

Whether you’re a trader, developer, or concerned employee, here’s how you can make a difference as a crypto whistleblower. 

Crypto Fraud: The Situation Today

Fraud is an unfortunate issue in every financial market – including crypto. Various regulatory bodies (like the SEC) are trying to crack down on scams and malicious conduct, but the problem is still there. 

Crypto fraud cases vary drastically in design and scope. They can include everything from unregistered offerings, to pump-and-dump schemes, and phishing scams. Overall, virtually every scheme is designed for the same purpose – to dupe investors, and steal funds. 

Some fraudsters try to steal information, like security passwords and wallet keys, from traders. Others try to manipulate buyers into investing in fake projects. 

In 2024, there was a major uptick in fraud cases, particularly those that took advantage of on-chain projects. Pig butchering scams (similar to Ponzi schemes) increased by over 40%, thanks to criminals experimenting with new AI and automation strategies. 

One high-profile crypto fraud case you may have heard of involved Terraform Labs’ founder, Do Kwan, who misled investors and caused a $40 billion collapse in the LUNA ecosystem. Another notable case was FTX, where Sam Bankman-Fried faced prosecution (and 25 years in prison) for misappropriating billions in user funds.

Why the Crypto Fraud Issue is Spreading

There are a few reasons why crypto fraud cases are becoming more common. First, the whole nature of the crypto landscape makes it easier for criminals to act maliciously. Decentralized blockchain environments make it harder to regulate transactions and spot bad actors. 

Scammers also take advantage of the limited education many investors have – not everyone knows exactly how blockchain technology, smart contracts, and crypto tokens work.

Plus, criminals now have advanced tools, like AI systems, that make it easier to create a scam or scheme that’s difficult to differentiate from a real opportunity. 

At the same time, the crypto space continues evolving, introducing new opportunities for scammers in different environments. DeFi (Decentralized Finance) platforms with unaudited smart contracts come with major security gaps. NFT projects allow scammers to entice investors with assets that have no real, underlying value. There are even criminals investing in creating “fake exchanges” and fake smart wallets that mimic real-world solutions.

Most Common Types of Crypto Fraud to Watch Out For

Criminals are always discovering new ways to target victims in the crypto space, but there are some common issues that crypto whistleblowers should be familiar with, particularly now. 

Investment and Ponzi Schemes

Ponzi schemes and crypto pyramid schemes are very common. Both target investors, encouraging them to support a new project or coin with promises of massive (often unbelievable) returns. At first, investors seem to reap rewards, getting great returns on their investment. 

You’re told you’ll earn 2% or more daily, or that the platform uses “AI trading bots” to generate massive returns. But in reality, there’s no real business model, just a funnel of money from new recruits to old ones. Over time, as new investors disappear, profits dry up, and the scammers take off with the money they’ve accumulated. 

A good example is the Forsage crypto Ponzi scheme, where scammers stole more than $300 million before being shut down by the SEC. 

Spot the red flags:

  • Promises of “guaranteed” returns

  • Lack of transparency or whitepaper

  • Referral bonuses that encourage recruitment over product use

Fake ICOs and Token Scams

Can you spot a fake initial coin offering or token from a real one? It’s becoming harder, particularly now that criminals have AI to help them. Fraudsters use flashy websites, slick marketing, and made-up teams to promote worthless coins. These scams often surface during bull markets, when FOMO is high and due diligence is low.

Usually, the scam launches a token sale or presale (ICO), often on its site. Once they’ve raised enough funds, the team vanishes, sometimes after giving excuses about “regulatory delays” or “hacks.”

The famous Prodeum token scam collected funds from unsuspecting users, only to shut down its website and leave behind a single (inappropriate) word. 

What to watch for:

  • Anonymous developers or unverifiable LinkedIn profiles

  • No clear roadmap, utility, or code

  • Pressure to “get in before it’s too late”

Rug Pulls in DeFi and Liquidity Mining Scams

Rug pulls and liquidity mining scams are examples of crypto schemes that pull everything out from underneath an investor. In a rug pull, developers promote a token or liquidity mining platform, attract investments, then withdraw all the funds, draining the liquidity pool and walking away.

Investors buy tokens and lock them into yield farms, expecting passive rewards. Then one day, the platform disappears, and so does the money. A famous example of this is the Squid Game token, which surged in value before the creators pulled the plug and ran off with millions. 

How to protect yourself:

  • Check if the contract is audited

  • Look for locked liquidity and renounced contract ownership

  • Be cautious of DEX-only tokens with anonymous teams

Exchange and Broker Scams

Not all fake platforms are obvious. Some copy the design of reputable exchanges or claim to offer “insider access” to high-return investment pools. Once you deposit funds, you’re locked out, ignored, or asked for more money to “unlock” withdrawals.

BitKRX, a fraudulent exchange in South Korea, claimed to be linked to the Korea Exchange (KRX). It used that illusion of credibility to steal user funds before being exposed.

Telltale signs:

  • Unlicensed or unregulated brokers

  • Fake customer support reps asking for your seed phrase

  • Unusual fees or “security deposits” to process withdrawals

Wallet Theft and Phishing Attacks

Phishing attacks are a favorite among crypto scammers, and they’re getting more convincing. From fake MetaMask pop-ups to support impersonators on Telegram, these scams aim to steal your wallet credentials.

You’re lured to a fake site or app, usually through ads, DMs, or emails. You enter your private key or seed phrase, thinking it's secure. In seconds, your wallet is emptied.

Watch out for:

  • Fake customer support accounts on social platforms

  • Domain names that look “almost right” (e.g., metarnask.io)

  • Chrome extensions or apps requesting full wallet access

Pump and Dump Schemes

Pump and dump schemes are market manipulation in real-time. These schemes involve artificially inflating a token’s price (the “pump”), generating buzz, and then selling off en masse (the “dump”), leaving everyday investors with heavy losses.

Organizers,  sometimes influencers or Discord groups, coordinate buys of a low-volume token. They hype it up on social media, then offload their holdings once the price spikes.

In early 2024, a Telegram group promoted “MoonToken,” causing a 500% spike in hours. The orchestrators sold their tokens at the peak, crashing the price, and wiping out small investors.

How to recognize one:

  • Sudden, unexplained price surges

  • Heavy promotion from anonymous or unverified sources

  • Buzzwords like “100x” or “moonshot” without real utility

How Crypto Whistleblowers Help Fight Fraud

Crypto whistleblowers are the people who spot fraud attempts and sound the alarms – hopefully before more people become victims. Whistleblowers come in many forms, from people inside crypto schemes who have a change of heart, developers, analysts, and early users. 

They step forward and share valuable information with agencies responsible for protecting financial markets, like the SEC and CFTC. They don’t always provide huge amounts of evidence, but they give these authorities just enough insight to trigger an investigation. 

A credible tip about a fraudulent scheme or an inconsistency in a project’s claim might be enough to light a fire beneath crypto regulators. The US has even created formal programs designed to incentivize and protect whistleblowers who help tackle fraud. 

Most whistleblowers prefer to stay anonymous, but there are famous examples out there. For instance, Tiffany Fong was one of the major whistleblowers who led to Sam Bankman-Fried’s arrest. 

In 2024, the OSC in Canada also awarded $300,000 to a whistleblower who helped to uncover misconduct in a crypto case. Whistleblowers aren’t just making noise, they make crypto safer by:

  • Increasing transparency and revealing behind-the-scenes misconduct

  • Deterring bad actors (showing them that fraud doesn’t stay hidden forever)

  • Helping law enforcement recover stolen money and tokens

How to Build a Strong Case Against Cryptocurrency Fraud

If you’re thinking about reporting a cryptocurrency pyramid scheme, liquidity mining scam, or any other type of fraud, it’s always helpful to collect as much evidence as possible. 

You might collect: 

  • Screenshots of emails, chat logs, and announcements

  • Transaction records from wallets or blockchain explorers

  • Smart contract addresses and code snippets

  • Team member names, social profiles, or internal communications

That kind of evidence helps regulatory agencies link patterns of fraudulent activity to particular people, platforms, and even wallets. 

Stay Safe While Gathering Information

Whether you're an internal whistleblower or an observant investor, your security matters. Although there are protections in place in the US for whistleblowers, it helps to be extra safe: 

  • Use a VPN when researching or collecting data

  • Store files in encrypted folders

  • Consider creating a burner wallet or device

  • Don’t discuss your findings on public forums

If you're submitting anonymously, working through an attorney is usually a good idea. 

Remember, the stronger your documentation, the more likely enforcement agencies are to take your claim seriously. Stay ethical. Don’t hack or steal information,  only gather what’s lawfully accessible to you. Your role is to help the law, not to break it.

Legal Protection and Rewards for Whistleblowers

Whistleblowers are valuable members of the crypto community, and they deserve protection. Fortunately, most regulatory bodies and governments recognize that. The SEC has its dedicated whistleblower program (created in 2010), which protects and rewards whistleblowers. 

You can earn up to 10 to 30% of the monetary sanctions the group collects, and you can access protections to defend yourself against any retaliation. 

You may qualify if:

  • You submit original, credible information

  • The tip leads to a successful enforcement action

  • The resulting fines or penalties exceed $1 million

You do not need to be a U.S. citizen. Both the SEC and CFTC agencies accept tips from international individuals if the fraud affects U.S. markets. Aside from the potential rewards, you can remain anonymous if you choose, and you’ll be protected from employer retaliation.

Understanding the Role of the CFTC in Crypto Fraud Cases

A lot of people associate crypto regulation in the US with the SEC, but the CFTC (Commodity Futures Trading Commission) also plays a role. They’re often involved with crypto fraud cases that involve derivatives, tokens, and manipulative trading schemes. 

The CFTC regulates crypto products like:

  • Futures or options contracts involving cryptocurrency

  • Liquidity mining scams involving synthetic assets

  • Market manipulation in crypto commodities (e.g., Bitcoin, Ethereum)

When a crypto fraud case involves commodities or affects U.S. markets, the CFTC can take action, as it did in the $12 billion judgment against FTX in 2023. Many DeFi projects and token offerings now fall under its scrutiny due to their economic structure resembling commodity derivatives.

Like the SEC, the CFTC also has its whistleblower program that allows individuals to report cases confidentially, earn rewards, and receive legal protection. 

How to Report Crypto Fraud to the Authorities

Whether you’ve been affected directly by liquidity mining scams, a fake exchange, or another form of fraud or not, you can still report the issue. Different jurisdictions do have different guides on how to report cryptocurrency scams, but most processes follow these steps: 

1. Gather and Organize Evidence

Before getting in touch with an authority, collect as much relevant data as possible:

  • Blockchain transactions (hashes and wallet addresses)

  • Screenshots of communications or dashboards

  • Links to misleading marketing, websites, or contracts

Be sure the information is specific, factual, and verifiable.

2. Choose the Right Agency

In the US, this is likely to be the SEC, CFTC, or both: 

  • SEC: Report fraud involving securities (e.g., token sales, staking-as-a-service). File using Form TCR.

  • CFTC: Report fraud involving commodities, swaps, or derivatives. Visit whistleblower.gov.

If you’re not sure which agency you should be reporting to, speak to a legal professional for guidance. 

3. Submit Safely

You can file anonymously through an attorney. Both agencies maintain whistleblower confidentiality and encourage responsible, lawful reporting. If you’re worried about becoming a crypto whistleblower, take extra steps to protect yourself, like using a VPN. 

Why Flipster Supports Transparent and Secure Crypto

At Flipster, we believe the future of finance depends not just on innovation but on transparency, security, and accountability. Fraud doesn’t just harm individual investors, it undermines the trust that fuels this entire ecosystem.

Our platform is built with multiple layers of protection:

We encourage individuals. whether employees, partners, or users.  to speak up if they encounter misconduct. Crypto whistleblowers help the industry grow into something more robust, ethical, and fair.

Crypto Fraud Whistleblower FAQ

Q: Can I be a whistleblower if I’m not a U.S. citizen?

Yes. You don’t need to be a U.S. citizen to report fraud. Both the SEC and CFTC accept tips from international individuals if the scam impacts U.S. investors or markets.

Q: What if I only have suspicions but no hard proof?

You can still file a report. While strong evidence increases your chances of a reward, well-documented suspicions may prompt investigations, especially when tied to other complaints or ongoing crypto fraud cases.

Q: How long does it take to investigate a crypto fraud report?

Investigations can take several months to years, depending on the complexity of the scheme and cooperation from involved parties. Agencies prioritize cases with clear evidence and high financial impact.

Q: Will the fraudsters know I was the one who reported them?

No. Your identity remains confidential, especially if you submit through an attorney. Agencies like the SEC and CFTC are legally bound to protect whistleblower anonymity throughout the process.

Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with a significant risk of loss due to its high price volatility, and is not suitable for all investors. Please refer to our Terms.