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Best Practices in Attempting to Recover Funds from Crypto Scams

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6 min read

Best Practices in Attempting to Recover Funds from Crypto Scams

Scams involving Bitcoin or other cryptocurrencies are rapidly increasing in frequency.

If you have been scammed, you may feel angry, embarrassed and unsure of where to turn to recover your funds. This article lays out the best practices for attempting to recover your funds.

Please note: CryptoAssetRecovery.com offers a service to help you trace crypto assets implicated in scams. However, while we can provide a clear trail and uncover real-world identities linked to suspicious transactions (in some cases), we want to emphasize that the likelihood of actual recovery is low. Nonetheless, the information gained can be valuable for legal proceedings and can contribute to broader efforts against cybercrime.

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How likely is it that you can recover your funds?

First, the bad news: it is very unlikely that you will recover your funds.

However, that doesn’t mean that you can’t recover (emotionally) from the situation that you’re currently in.  You also have the power to help the government bring the scammers to justice, and to help other people avoid the same fate.

And, in some very specific situations, it appears that the government has returned some portion of recovered funds to their victims.

These suggestions represent best practices:

  • Don’t make the situation worse
  • Protect your credit
  • Document the situation while it’s all still fresh in your mind
  • Help the authorities cause pain to the scammers
  • Help others avoid making the mistakes that you made

How could this situation get worse?

Some scammers focus on defrauding people that have already been scammed.  The US Commodity Futures Trading Commission (CFTC) calls these recovery scams:

Commonly, a victim receives a phone call or email from a person claiming to be a government official, an attorney, or recovery service representative. In most cases the fraudsters claim to have the money already in hand, or are working with the court to distribute the funds. In other cases, the victims are told that the fraudsters who took their money have been tracked down and the caller is notifying victims to begin a civil court action.

source: https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/RecoveryFrauds.html

After making contact with a victim, recovery scammers will explain that they need you to pay an overdue tax, a retainer or some other up-front fee before your funds can be released to you.  This is the scam.  They have not recovered your funds — if they had, they could simply take the fee from the funds.

Don’t pay anything up-front to someone that claims that they can recover your funds. Get your funds back first, and then deal with any fees.

In many cases, you may have shared private financial information with scammers.  We have heard stories of scammers requiring their victims to provide photos of identity documents, like drivers licenses or passports.  These documents may make it easier for scammers to steal your identity.

Monitor your Credit, and Consider Placing a Fraud Alert

It is important that you monitor your credit.  USA.gov has information on how to check your credit report.

In addition, you may want to place a fraud alert on your credit report.  The Federal Trade Commission (FTC) explains: “A fraud alert will make it harder for someone to open a new credit account in your name. A business must verify your identity before it issues new credit in your name.”

Filing a fraud alert is simple — you contact one of the three credit bureaus (Equifax, Experian, or TransUnion), and they will contact the other two.

Document the Situation

Write out the details of how the scam worked, now, while it’s easy to find emails, texts and other digital trails.

Here’s the information that you should collect and write down so that you can fully report the scam:

  • Your contact information
  • Contact information for the individuals and/or company that ran the scam.  This could include full name, mail and email addresses, social media profiles, ip addresses (if you have them), and telephone numbers.
  • A detailed description of the scam itself:
  • When did the events happen?
  • Who was involved?
  • How was the scam started, and how did it proceed?
  • How much money / crypto did you lose?
  • What exchanges or wallets did you send funds from and to?
  • Keep all copies of emails or physical documents

Here is an example of a Victim Impact Statement for a specific scam prosecuted by the US Department of Justice.  This will give you a sense of the kind of information that law enforcement may request from victims.

‍Working with a Professional Tracing Service

Crypto Asset Recovery is here to assist you in tracing your lost assets. Using advanced blockchain forensics, we can track suspicious transactions and link pseudonymous blockchain activities to real-world entities. This can help you gain insight into the scam and provide valuable information for legal proceedings.

While we offer a robust tracing service, we reiterate that the chances of actual recovery are very slim. It is important to have realistic expectations while dealing with the aftermath of crypto scams. Our primary goal is to provide transparency and clarity in a situation that may otherwise seem hopeless.

You can reeach out about a trace here: cryptoassetrecovery.com/contact

Report the Scam to the Government

If you are a US resident or citizen, you should report the scam to several different government agencies:

Report the scam to any Exchanges or Wallet Providers Involved

If you used an exchange, like Coinbase.com, to fund an account and then send those funds to a scammer, you should notify the exchange.  The most sophisticated of these exchanges may look for patterns and be able to prevent other people from falling for the same scams.

Coinbase has requested that people contact them about scams at this email address: security@coinbase.com

Kraken has published a page for reporting phishing incidents.  This is probably your best approach to report a scam.

Paxful says: “report it to our support team or file a dispute so we can start the investigation immediately and recover your Bitcoin if there’s sufficient evidence.”

Should you work with a for-profit agency that specializes in recovering funds for Scam Victims?

Short answer, yes.

Has the US Federal Government Ever Recovered Funds and Redistributed them to Victims?

The basic idea is: if you report a scam, the government tracks the criminals (perhaps when they withdraw their funds from an exchange) and recovers funds from them — might the government send your funds back to you?

The US government says that for certain types of scams, they do occasionally return funds.  For example, the US Securities and Exchange Commission (SEC) says that “Sometimes a successful SEC enforcement action results in recovered funds being distributed to victims.”

The article goes on to say: “Not all victims are able to recover money. Victims who do recover money may receive substantially less than their losses and the process for distributing the money may take a long time.”

The CFTC recently announced a restitution order against David Gilbert Saffron and Circle Society, Corp for defrauding 179 individuals of USD $15.8 million worth of Bitcoin and U.S. dollar in a foreign exchange and cryptocurrency trading scheme.  However, they warn that “restitution orders may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets”.

In July, 2021, the US Department of Justice announced that Roger Nils-Jonas Karlsson defrauded more than 3,500 people of about $16 million between 2012 and 2019.  He was sentenced to 15 years in prison, and apparently some funds were recovered which are being returned to victims.

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Why is asset recovery important in preventing and combatting corruption?

First, for its deterrent effect. People are more likely to engage in corrupt behaviour if they are confident that – even if they are caught and convicted – they and their families will still be able to enjoy their illegally obtained wealth. Recovering illicit assets helps deter corruption by turning it into a higher-risk, lower-reward activity. Second, by convicting corrupt officials and recovering stolen assets, countries can also generate funds for development and strengthen their criminal justice system. The end results are stronger rule of law, integrity and trust in government.

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  • Poorly developed processes for building and documenting cases
  • Lack of, inadequate, contradictory or unclear legal framework
  • Weak/inefficient international networks
  • Lack of domestic inter-agency cooperation
  • Infrastructure and technology deficits
  • Insufficient security of staff, documents and communications
  • Agencies lacking autonomy
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