Cryptocurrency, Altcoin and ICO Fraud Investigation
The rising popularity of cryptocurrency speculation comes with increased risks for investors. Complaints of investment fraud and price manipulation in digital currency markets have risen sharply.
Hudson Intelligence conducts cryptocurrency fraud investigations for investors, corporations and law firms. Our investigators are experienced in exposing financial cybercrimes and international fraud schemes.
By combining digital forensics with traditional investigative techniques – and our experience fighting online crime and investment fraud – we deliver clear results in the most complex and challenging cases.
Cryptocurrency Basics: Bitcoin and Beyond
Cryptocurrency is an asset with no physical form, which exists purely as a digital record stored across a decentralized network of computers. Transactions are recorded in a distributed ledger known as the “blockchain” because every purchase and sale is registered as a “block” of new data and added to the end of the string. The blockchain is automatically replicated across the peer-to-peer network – in what is known as a “consensus protocol” – to prevent participants from corrupting or changing the ledger in their favor.
Bitcoin, the best-known cryptocurrency, skyrocketed in value during 2017, increasing from around $1000 to a peak of nearly $20,000. Speculators were drawn into the market with an expectation of similar returns, before a precipitous sell-off eliminated more than half of Bitcoin’s market value by early 2018. Bitcoin’s crash exposed the risks, but did not extinguish investor enthusiasm. There are hundreds of competing digital currencies – known as ‘altcoins’ – including Ethereum, Monero, Ripple, Zcash and SiaCoin. Profit-seekers have begun funding cryptocoin ‘mining’ operations where data centers used to facilitate transactions are compensated with the creation of new coins.
Cryptocurrency and blockchain are genuine innovations with potential for positive impact in financial markets. But they are also buzzwords that have been badly abused and exploited to promote fraudulent schemes, including investment fraud and illegal market manipulation. The cryptocurrency market is a frontline in the fight against financial crime.
Promises of ‘guaranteed profits’ from an Initial Coin Offering (ICO), cloud mining operation or other cryptocoin investment? Promoters of Ponzi schemes solicit investors with big talk about market innovation and insider insights, but instead of placing customer funds in a legitimate investment, they misappropriate the money to line their own pockets.
In a pump-and-dump scheme, unscrupulous promoters “pump” an altcoin by making false and misleading statements to private investors about potential returns. They coordinate with conspirators, orchestrating a sell-off for a specified date. The value increases as unsuspecting victims buy more currency, but the price crashes as soon as insiders 'dump' their shares.
Cryptocurrency Fraud Investigation
Online frauds, cybercrimes and cryptocurrency schemes may involve fictitious personas and stolen identities, controlled by individuals – or criminal organizations – in multiple countries.
The typical steps taken in online fraud investigation are:
The investigation begins by reviewing the narrative of events and timeline of the scheme, to confirm whether there is material evidence of fraud, and to document the extent of financial losses.
Then the investigation proceeds to determine the true identity and location of the responsible parties.
Once the principals have been positively identified, due diligence is conducted to develop relevant information on their backgrounds, including investigation of criminal history, professional credentials, financial liabilities, and any pattern of involvement with past frauds.
These findings are summarized in detail in a formal investigation report, supported by documentary evidence.
Upon completion of the investigation report, we will advise on potential next steps, which could include direct contact with the responsible parties to present a formal demand for immediate return of client funds; notifying law enforcement and regulatory authorities; or filing civil litigation.
Security Breaches and Theft
Hackers have emptied digital wallets – and company coffers – by exploiting security lapses in cryptocurrency exchanges, startups and initial coin offerings. Phishing attacks are frequently used to gain unauthorized access to administrative passwords and private keys. More than 10 percent of ICO proceeds – around $1.5 million per month – are reportedly lost as a result of attacks by hackers.
Digital currencies have become a preferred method for criminals to launder proceeds of other illicit activities, and have been used for tax evasion, extortion and drug trafficking. Alternative cryptocoins offering anonymous transactions and zero-proof technology make it increasingly difficult, but not necessarily impossible, for investigators to trace the flow of funds.
Consult an Investigator
We assist investors, corporations, and law firms with cryptocurrency investigations. We typically assist in matters involving financial damages of at least $50,000. If you would like to discuss a potential investigation, please complete the form below or contact our offices at 800-580-8755.