This matters because perpetual contracts have, until now, traded almost entirely outside the United States. The statement explains that uncertainty about how these products fit within U.S. law pushed their market overseas, and the CFTC’s aim is to give them a clear, regulated path to develop at home instead (Policy Statement, p. 2; p. 6). The agency released the statement together with an order approving the first U.S. perpetual futures contract, one tied to the spot price of bitcoin, and used the statement to explain how it will handle perpetual contracts on other assets (Policy Statement, p. 1; p. 3, n.4).

This post explains what the CFTC said: why it acted now, how perpetual contracts differ from ordinary futures, the manipulation concerns their design creates, and why the agency wants to review these products before they launch. One point is worth making at the start: the policy statement is guidance, not a binding rule, so it does not change the law or create new legal obligations (Policy Statement, pp. 3-4).

Why did the CFTC issue a perpetual contracts policy statement?

The CFTC acted because the market for these products had developed almost entirely offshore. The statement explains that perpetual contracts “have become a dominant form of crypto derivative trading in global markets,” but that, “given the regulatory uncertainty concerning the appropriate classification of these types of contracts,” the market “has largely developed outside of the United States, with the majority of trading occurring on offshore trading venues” (Policy Statement, p. 2).

The CFTC had spent about a year preparing for this step. On April 21, 2025, Commission staff asked the public for input on trading and clearing perpetual-style derivatives, CFTC Release No. 9069-25, along with a companion request on round-the-clock (24/7) trading, CFTC Release No. 9068-25 (Policy Statement, p. 2, nn.1-2). The statement also points to the President’s Working Group on Digital Asset Markets report of July 30, 2025, which urged the CFTC and the U.S. Securities and Exchange Commission to use their existing authority to give faster, clearer guidance for new derivatives products, including perpetual contracts (Policy Statement, p. 3, n.3).

The bitcoin order issued the same day set the boundaries of the statement. That order let a regulated exchange (a designated contract market) list a perpetual contract tied to the spot price of bitcoin, and the policy statement covers everything the order does not, namely perpetual contracts on other kinds of assets (Policy Statement, p. 1; p. 3, n.4).

How do perpetual contracts differ from traditional futures contracts?

The main difference is simple: a perpetual contract never expires. The statement defines perpetual contracts as “derivative contracts that have no fixed expiration date, and which rely on a periodic funding rate mechanism, rather than a fixed expiration date, to maintain relative price parity with the underlying asset’s spot price” (Policy Statement, p. 2).

An ordinary futures contract stays close to the market price because it expires on a set date. A perpetual contract has no expiration, so it uses a recurring payment between buyers and sellers to keep its price in line. As the statement explains, “When a perpetual contract trades above the spot price, the traders with long positions make payments while the traders with short positions receive payments; and vice versa” (Policy Statement, p. 4). Those payments give traders a reason to trade against any gap between the contract price and the real market price, which pulls the two back together (Policy Statement, p. 4).

In short, the funding rate does the job that an expiration date does for a normal futures contract. The statement calls it a tool that “functions as a replacement to the traditional expiration-based convergence mechanism upon which a futures contract typically relies” (Policy Statement, p. 5).

What concerns do perpetual contracts raise under DCM Core Principle 3?

Because a perpetual contract never expires, it is harder to guard against manipulation, and that is the CFTC’s main concern. Under DCM Core Principle 3 (7 U.S.C. 7(d)(3)), a regulated exchange may list a contract only if it is not easily manipulated. For an ordinary futures contract, regulators mainly need the settlement price to be reliable at one moment, when the contract expires; a perpetual contract has no such moment, so its reference price must stay reliable the entire time it trades (Policy Statement, p. 5).

The statement makes this point directly, connecting the manipulation concern to its decision to require advance review:

Perpetual contracts raise novel and complex questions relating to market structure, customer protection, resilience during periods of market stress, and consistency with the Core Principles applicable to registrants under the CEA. For example, a perpetual contract’s design and characteristics raise important considerations with respect to DCM Core Principle 3, which requires that a DCM list only those contracts that are not readily susceptible to manipulation.⁷ For a traditional, cash-settled futures contract, the susceptibility-to-manipulation analysis directed at the cash settlement reference price is an analysis of one moment in time: the settlement reference price must be reliable at expiry. For a perpetual contract, however, the reference must be reliable at every funding interval, without interruption, for as long as the contract remains active.

It is therefore the Commission’s view that perpetual contracts that reference asset classes that are not contemplated in the Order should be submitted for Commission review and approval pursuant to the voluntary product approval process under Commission Regulation 40.3.

Policy Statement Concerning the Listing of Perpetual Contracts (p. 5)

Why does the CFTC favor Regulation 40.3 review over 40.2 self-certification for perpetual contracts?

The CFTC wants to review these products itself before they go live. Normally, under Regulation 40.2 (17 CFR 40.2), an exchange can certify on its own that a new product follows the law and then list it without waiting for approval. The CFTC decided that perpetual contracts are new and complicated enough that the public is better protected if the agency reviews them first, through the approval process in Regulation 40.3 (Policy Statement, pp. 5-6).

The agency also pointed to the benefits of reviewing products in advance. Advance review, the statement says, “promotes transparency, facilitates engagement between Commission staff and registrants during product development, and provides greater regulatory clarity” for companies trying to bring new products to market responsibly (Policy Statement, p. 6).

The CFTC also signaled that it will treat different assets differently. A footnote calls perpetual contracts on agricultural products “likely particularly ill-suited” to this design, while perpetual contracts on equity securities or narrow-based security indexes “would benefit from review by the Commission and the U.S. Securities and Exchange Commission” (Policy Statement, p. 3, n.5). The agency added that it may revisit perpetual contracts later through separate guidance or a formal rule, but it made no commitment either way for now (Policy Statement, pp. 6-7).

For more on this topic and related developments, see our resource center at digitalasset.law. If you have questions, you can request a consultation.

Frequently Asked Questions

What confidential Google data did Spagnuolo allegedly misappropriate?

The complaint centers on Google’s “Year in Search” results, which it describes as commercially valuable proprietary data. Spagnuolo, identified as “a staff software engineer at Google” since approximately 2014, allegedly “misappropriated confidential and valuable nonpublic information from his employer” and used it to place “Google-related bets on Polymarket, a prediction market platform” (pp. 2, 3).

The complaint emphasizes the data’s sensitivity, explaining that “because the commercial impact of the campaign depends on the element of surprise and the coordinated nature of its public reveal, the top-trending search information is valuable” (p. 3). Access within Google was reportedly limited, and the internal tool through which Spagnuolo viewed the data “bore a banner that stated, in part, ‘Google Confidential’ in red text” (p. 3).

How did the alleged Polymarket scheme work?

The complaint alleges a temporal correlation between Spagnuolo’s access to Google’s internal data and his wagers. Polymarket, a Manhattan prediction marketplace operated by Blockratize, Inc., began offering binary event contracts in October 2025 on who would rank among the most searched people on Google for 2025 (pp. 3-4). After accessing the data on or about October 15, 2025, the AlphaRaccoon account began betting the following day (p. 6).

After the internal leader changed, the complaint states that “by this time, Google’s internal Year in Search data reflected that ‘d4vd’ had replaced Kendrick Lamar as the ‘#1 searched person on Google’ for 2025” (p. 6). Investigators describe wagers structured to exploit that foreknowledge, including approximately $937,688 against Bianca Censori and $509,149 against Donald Trump as the top searched person (p. 6). In total, the account “risked approximately $2,754,092 on approximately 25 Google Year in Search 2025 outcomes that the market treated as unlikely,” and after Google’s December 4, 2025 release it “profited approximately $1.2 million” (pp. 4, 6). A footnote adds that the results page briefly “went live between approximately five and six hours earlier than anticipated” before being taken offline (p. 4, n.1).

How did investigators link the AlphaRaccoon account to Spagnuolo?

Investigators attributed the account to Spagnuolo through cryptocurrency tracing. The complaint describes funds flowing through a swapping service to a payment processor, where transactions “were received by account in the name of ‘Michele Spagnuolo,'” an account opened using an Italian Government identification card (p. 5). The money-laundering count rests on subsequent concealment, including swaps through a decentralized service and a transfer to a service that “adds privacy protection to cryptocurrency transactions through removal of wallet addresses from the blockchain” (p. 7).

The complaint also notes a reputational dimension to the concealment, observing that “after Discord and X communities discussed AlphaRaccoon, and speculated its user was a Google insider, the ‘AlphaRaccoon’ username was removed from the Polymarket account” (p. 7).

Why is this charged as commodities fraud rather than securities fraud?

The lead count rests on the Commodity Exchange Act because the trades are charged in connection with a swap rather than a security. Count One alleges that Spagnuolo used a “manipulative and deceptive device” in contravention of 17 C.F.R. § 180.1, the CFTC’s anti-fraud rule, “knowing that he had obtained material nonpublic information in breach of a duty” (p. 1). That misappropriation theory ties the three counts together, and each count also cites 18 U.S.C. § 3238, the venue provision for offenses committed outside the jurisdiction of any single district (pp. 1-2).

What penalties do the charges carry?

According to the U.S. Attorney’s Office, the Commodity Exchange Act count carries a maximum of 10 years in prison, and the wire fraud and money laundering counts each carry a maximum of 20 years (Press Release). The office, which announced the charges through U.S. Attorney Jay Clayton and FBI Assistant Director in Charge James C. Barnacle, Jr., states the matter is being handled by its Securities and Commodities Fraud Task Force (Press Release). Spagnuolo, described as a 36-year-old Italian citizen residing in Switzerland, was presented before Magistrate Judge Netburn (Press Release).

Anyone facing scrutiny over prediction market trading, digital asset transfers, or the handling of an employer’s confidential information has reason to seek counsel early. To discuss a specific situation with a Chicago attorney, you can request a consultation. For a deeper reference on these issues, see our financial markets resource center.

Key Authorities

• Commodity Exchange Act, 7 U.S.C. §§ 9(1), 13(a)(5)
• CFTC Rule 180.1, 17 C.F.R. § 180.1
• Wire fraud, 18 U.S.C. § 1343
• Money laundering, 18 U.S.C. § 1956
• Extraterritorial venue, 18 U.S.C. § 3238
• Aiding and abetting / principal liability, 18 U.S.C. § 2

Frequently Asked Questions

Editor’s note (May 24, 2026): This article describes the SEC’s January 28, 2026 Staff Statement on Tokenized Securities. On March 17, 2026, the SEC and CFTC issued a joint interpretive release establishing a broader five-part token taxonomy for crypto assets (digital commodities, digital collectibles, digital tools, stablecoins, and digital securities). The January 28 staff statement remains in effect and was not altered by the joint release; this article should be read together with the March 2026 joint release for the complete current framework.

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 Tokenization

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 Tokenization

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

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.

This article was originally published on January 29, 2026 on digitalasset.law. It was reviewed and reposted on gdowd.law on May 24, 2026.

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.

Whistleblower Program Background

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.

Details of the Recent Award

The CFTC awarded the $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).

The Role of Whistleblowers in Market Regulation

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.

Benefits of Engaging an Attorney for Whistleblower Complaints

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 a hostile work environment, by seeking legal remedies under whistleblower protection laws.

Importance of Expertise in Financial and Digital Asset Markets

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. For background on both the SEC and CFTC whistleblower programs, see the Whistleblower Programs resource at digitalasset.law.

Conclusion

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
• CFTC Order Determining Whistleblower Award Claim, No. 25-WB-07
• Whistleblower.gov for more information about the CFTC’s Whistleblower program

This article was originally published on May 29, 2025 on digitalasset.law. It was reviewed and reposted on gdowd.law on May 24, 2026.