Cryptocurrency fraud cases can come in many variations. In this blog, we explore a couple of common ones.
Sim swaps have become increasingly common . In these fraudulent transactions, the thief obtains access to the user’s phone through their wireless carrier, sometimes they will have the actual phone but more commonly they can get access remotely. Using this access, they can sometimes reset the user’s password on a cryptocurrency exchange and then steal the assets. Once a hacker takes over your phone, they can change your email password and prevent you from receiving 2FA alerts. In this situation, a user may be able to obtain recourse against the exchange and the wireless carrier, depending on the individual facts.
Many cryptocurrency fraud cases involve a fraudulent Initial Coin Offering (ICO). An ICO is essentially where a business first starts selling crypto assets and solicits money from investors. It’s classic fraud where a fake company claims to be real, and simply taking investors’ money. One notorious example involves Bitcoin Savings & Trust. The founder, Shavers, a Texas resident who went by “pirateat40,” had started Bitcoin Savings & Trust and raised at least 764,000 bitcoins, promising returns as high as 7% per week. Allegedly, the operator invested some of the bitcoins with Mt. Gox, the now defunct Tokyo-based bitcoin exchange, and the operator used most of the new bitcoins to pay back prior investors and then stole more than 265,000 bitcoins. The operator was then ordered to pay $40 million in fines and sentenced to nearly two years in prison.
A company might make a legitimate ICO and attract new investors with certain promises, but later destroys the value of the investment by taking certain actions that resemble a classic pump-and-dump scheme. According to a pending lawsuit, Helbiz issued HelbizCoin and promised to use the proceeds of the coin’s ICO to build a smartphone-based vehicle rental platform, where customers must pay for its services exclusively with HelbizCoins. But Helbiz later allegedly decided to destroy HelbizCoin and offered to compensate the holders with Ethereum. By this time, however, most of the initial holders had sold out, leaving HelbizCoin’s exchange value almost worthless. Barron v. Helbiz, Inc., 2d Cir. Oct 4, 2021. The recent Squid Game coin is another example of a coin starting out promising, but because of the particulars of the coin and the actions of the founders, the coin lost value.
Fake currency / fake website
Countless crypto assets get created every day, drawing adventurous investors who hope for their next Dogecoin moment. But sometimes the cryptocurrency itself is completely fake, like My Big Coin. Its founder Randall Crater had allegedly lured investors into funding around $6 million into the fake currency in early 2018. Fortunately, the U.S. Commodity Futures Trading Commission (CFTC) soon indicted and arrested Crater.
A more sophisticated type of this scam involves misrepresentation of certain features that investors find attractive. A blockchain-based digital token called AML BitCoin was touted to have anti-money laundering (AML), know-your-customer (KYC), and other security features encoded in the smart contracts for the token. It didn’t. In 2020, the SEC settled its false registration and fraud charges with the founder and organization behind AML BitCoin. The founder pled guilty to parallel criminal charges.
A related common scam involves posing as a legitimate business related to another legitimate business. In Bitcoin Gold case, the scammers behind the scheme created a legitimate-looking website (mybtgwallet.co) and offered new users the chance to create Bitcoin gold wallets. They also asked the users to submit the private wallet keys used to protect their cryptocurrency wallets. While this was a pretty obvious scam, the scammers were able to fraudulently acquire more than $3 million in Bitcoin.
Given the prevalence of fraud in the cryptocurrency world, investors should be careful in their transactions. Due diligence should is essential and you should retain communications and other documentation concerning their investments.
Unfortunately, many victims of fraud and other scams are unable to ever recover their funds. There are, however, ways that certain victims can recover depending on the circumstances.
If you were the victim of a scam, contact a cryptocurrency attorney to determine whether you may be able to recover.
About the Authors:
Jordan Matyas – Clients benefit from Jordan’s more than two decades in government including working in the White House, the Legislature and as the Financial regulator for the State and most recently as the Chief of Staff at the Regional Transportation Authority. Jordan is also a registered State and City lobbyist, working with clients on government relations, legislation, policy, and other aspects of public affairs. Contact Jordan at 1818 – An Advocacy Group.
Michael Haeberle – Clients contact Mike when they need a litigator. He assists businesses and individuals in cases pending in court, arbitration, and administrative agencies, and has tried cases before judges, juries, arbitrators, and administrative law judges, with a focus on business lawsuits, contract litigation, shareholder disputes (business divorces), and professional negligence cases. Contact Mike at https://www.pattersonlawfirm.com/, The Business Lawyers to Call in a Crisis.