Victims of cryptocurrency fraud and theft incidents frequently ask me to estimate their chances for successful financial recovery. They approach my firm seeking assistance from our forensic investigators and fraud examiners. We specialize in asset tracing and investigations of complex frauds and financial crimes.
What are my odds? This question comes up quickly in consultations with new clients – sometimes before they’ve explained why they need an investigator in the first place.
It’s understandable. People with problems want a problem-solver. Someone who can achieve the best outcome in bad situations.
Investment fraud victims, in particular, crave clarity and reliable facts after being misled for months by unscrupulous scammers. Yet some want more than a good faith assurance. They demand something quantifiable, statistical. They want a number.
So what are the actual chances of successful recovery from cryptocurrency fraud and theft incidents?
a) 99%
b) 66%
c) 20%
d) 0%
Before answering, let me acknowledge it’s possible to formulate a correct response – but it’s extremely difficult to provide the kind of answer some people are desperate to hear in these situations.
99% Guaranteed Recovery from Cryptocurrency Schemes
Cryptocurrency criminal investigation remains limited to a relatively small field of experienced investigators and forensic experts. Relevant credentials include professional licensing as a private investigator with specialized training as a Certified Fraud Examiner (CFE) and Cryptocurrency Tracing Certified Examiner (CTCE).
Unfortunately, today there are a number of scam artists posing as “crypto recovery” and “fund recovery” specialists who falsely “guarantee” they can regain stolen funds through extrajudicial means. They might present themselves as “negotiation experts” or “ethical hackers” who can illegally gain access to private keys of the criminals. They might initially claim to work on a contingency basis (“We don’t get paid, unless you get paid”) but then inevitably charge a large upfront fee, often followed by more charges every month. Rather than helping victims rebuild their financial lives, they only dig a deeper hole, compounding the total amount of investor losses.
Some fake “recovery fraud” schemes actively target victims of online scams whose identities and contact details have been resold on darknet markets or passed long by criminal associates.
A fraud warning from the FBI presents a very clear picture of this problem:
The FBI warns of an increase in cryptocurrency recovery schemes, which exploit victims who lost cryptocurrency to fraud, scams, and theft…
Recovery scheme fraudsters charge an up-front fee and either cease communication with the victim after receiving an initial deposit or produce an incomplete or inaccurate tracing report and request additional fees to recover funds. Fraudsters may claim affiliation with law enforcement or legal services to appear legitimate.
Private sector recovery companies cannot issue seizure orders to recover cryptocurrency. Cryptocurrency exchanges only freeze accounts based on internal processes or in response to legal process. Victims can also choose to pursue civil litigation to seek recovery of their funds.
If you were the victim of an investment fraud scheme, it is because you were led to believe false claims about a no-risk, high-reward outcome.
In short: A liar told you what you wanted to hear.
Why insist on repeating that mistake when you hire an investigator?
Why ask a total stranger to predict the future?
Who could reasonably guarantee a good outcome for a complex fraud and forensic investigation – before they have conducted any research, interviewed any witnesses, reviewed any financial records, traced any assets, etc.?
Defrauded investors, theft victims and their legal counsel should scrutinize any “guarantee” of fund recovery and confirm they are dealing with a reputable firm before paying for an investigation. Basic due diligence can be accomplished online in minutes, including verification of private investigation licenses and business registration details through official websites of state agencies.
Real Value in Cryptocurrency Investigations
Financial recovery from cryptocurrency fraud, hacking and theft can be influenced by multiple factors, including the extent of support from law enforcement and regulatory agencies.
Fraud and theft victims who retain a qualified firm to conduct initial investigation and forensic analysis can significantly increase the likelihood that their complaint will receive a proactive response from law enforcement. There are several advantages:
Separating Fact from Fiction: The investigation report will present a concise narrative of the client’s case in an easily digestible format, backed by an appendix of supporting documents. Many fraud victims struggle to separate fact from fiction when first emerging from a months-long investment scam. Theft victims, on the other hand, must prove their wallet was compromised by a technical exploit, and drained of its assets. A professional investigation will identify and highlight information most pertinent to law enforcement, such as material misrepresentations, wire fraud, hacking, identity theft and asset misappropriation.
Smaller Ask, Lighter Lift: Obtaining the full results of a fraud or forensic investigation – before approaching law enforcement – greatly reduces the demands of time, attention and effort upon public agencies. It presents a lighter lift – with a clearer path toward a favorable verdict – for police and prosecutors. It makes it harder for them to decline the case.
Following the Money: Frequently, misappropriated digital assets are laundered through a series of intermediate wallet addresses in a process known as “layering” before being cashed-out through a cryptocurrency exchange. Other obfuscation techniques are also used to hide the flow of funds, such as peel chains, mixers and darknet markets. Fortunately, not every criminal has the skills – or the patience – to properly clean up after themselves. Using intelligence tools and forensic analysis, blockchain investigators can trace the path of digital assets to their ultimate destination, where they can then be frozen and recovered through criminal prosecution or civil action. Fraudsters and thieves often reuse the same exchanges for a period of weeks or months, before finding a new off-ramp. Even if the client’s funds have already been withdrawn, exchange accounts used by the perpetrators might contain substantial funds from other sources.
Preparing a List of Subpoena Targets: Cryptocurrency exchanges and internet service providers used to facilitate fraud, theft and money laundering schemes may possess valuable information on the responsible parties. By identifying these service providers and providing their contact details, the investigation report can serve as a roadmap for subpoenas and warrants.
Making a Case for Federal Agency Involvement: The Federal Bureau of Investigation and U.S. Secret Service have deep resources for investigation of cryptocurrency crimes. However, with certain exceptions, active intervention by federal law enforcement is typically predicated on minimum losses of one million dollars. For victims with smaller (but substantial) losses, it can be helpful to show the fraud/theft scheme has aggregate losses – across all victims – exceeding this seven-figure loss threshold.
Coordination with Local Law Enforcement: Local and state law enforcement can be effective partners, even if they lack the technical resources and trained personnel for forensic investigations of cryptocurrency crimes. Clear, evidenced-based reporting by a qualified firm should be easily understood by financial crimes detectives at municipal police departments, including those without prior experience in cryptocurrency casework. Local detectives and law enforcement officers tend to be highly motivated to work on behalf of fraud victims in their own community.
Effective support for criminal complaints is one of the areas where a private investigation can provide value for victims of fraud, hacks and theft. There may be other avenues of recourse, prompting referral to legal counsel for civil litigation or notification of regulatory agencies for enforcement actions, depending on the circumstances of the specific case.
Realistic Expectations for Financial Recovery
Financial recovery from a crypto fraud scheme or crypto theft is indeed possible, but cannot be guaranteed. Partial recovery is more common than full restitution. These tend to be complex cases – and the investigative and legal processes are not quick, easy or cheap.
If you do nothing, the odds of recovery are zero. This could be an appropriate choice if cutting your losses, and walking away, are necessary for the sake of your own mental health and emotional well-being.
My firm’s investigators have located more than $1.2 billion for clients, across all asset classes, since our firm was founded in 2011. We have coordinated on multi-million-dollar fraud investigations with the Federal Bureau of Investigation (FBI), U.S. Department of Homeland Security (DHS), Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), as well as state and foreign government agencies.
Still, even with this level of experience, we can’t quantify your personal odds of recovery from cryptocurrency fraud or cryptocurrency theft, before conducting an investigation. Every case — every set of circumstances — is unique. We have extensive credentials, but no crystal ball.
For context, though, it’s useful to consider the American Bar Association has estimated that 80% of judgments are never paid. That suggests all manner of litigants, on all types of cases, have only a 20% chance of collecting money they are owed after winning a lawsuit. Does that prevent attorneys and their clients from attempting to settle disputes through the courts? No, of course not. Even a 1-in-5 chance is better than nothing, and certain judgments have a higher likelihood of eventual payout.
In cases of cryptocurrency fraud and theft, your chances for successful financial recovery increase dramatically by finding and retaining the right investigator. That is 100% guaranteed.
John Powers, CFE, CTCE is president of Hudson Intelligence, an investigation agency specializing in complex fraud investigations, cryptocurrency forensics and international asset tracing.