Legal remedies in Cryto scams

Cryptocurrency scams continue to surge and are becoming increasingly sophisticated, with most scams being connected to large scale organised criminal gangs from across the globe; often using Artificial Intelligence ("AI") to target victims.

Victims caught up in these type of cryptocurrency scams are often deceived by extremely plausible fake trading platforms, operated by unregulated brokers posing as legitimate introducers. Those who have either recently inherited funds, or have a wealth portfolio, or retirement pot, are typically amongst those targeted.

Types of Crypto Scams

Our team have acted for clients on various different types of scams. The most common types of scams that we see include:

• Long-term investment scams through fake trading platforms.
• Training or educational scams (where victims sign up for a training/crypto course).
• Romance scams or "pig butchering" scams as they are often referred to (where victims are approached through dating apps).
• Phishing scams.
• Pyramid schemes or Ponzi scams.
• Social media scams.
• AI scams – victims are often engaged with AI where the exposure is high.
• Fake celebrity endorsements.
• Fake exchanges or platforms.
• Giveaway scams (where investors believe they are investing in a project which abruptly ends and liquidity is immediately drained).
• Rug pulls (where scammers create a seemingly legitimate project, attract investors, then pull out of the project leaving it with nothing).

Whilst all of these scams operate in slightly different ways, they often involve the victim's money being paid through a fake crypto platform. Often those fake platforms are managed by companies linked to serious organised criminal groups. The modus operandi for these fake trading platforms appears to be that the victim is allocated an 'account manager' who speaks with them (either by telephone or messaging service) to co-coerce them into investing further sums, often over an extended period of time. The victim is often given access to a fake online app to review the investments made. In reality, as often uncovered through subsequent investigation, the online Apps are fake – used by the fraudsters to control the victim's belief about their purported investment. In reality, the funds being paid are being immediately stolen by the fraudsters and used to support criminal activities.

Victims are now often then targeted in what is known as the 'double scam'. Victims are often approached by companies posing as asset recovery agents with promises that they can get the victim's money back – for a fee. In more than 90% of cases, victims are deliberately targeted by fake recovery agents in an attempted double scam. Typically, the victims have put their life savings into the initial scam, only to fall victim to an additional scam.

The fraudsters will usually then sell lists of victims' details to other organised criminal gangs. Essentially, despite having been defrauded already, victims' personal details effectively get put onto a list of those to be targeted again – that second approach is usually in the form of a fake recovery agent.

Victims of cryptocurrency scams are often very stressed and desperate to recover their funds. Some victims are also having to deal with the perceived embarrassment and emotional stress than comes with this. The fake recovery agents promise a recovery in exchange for a large sum up front. Once the 'fee' is paid, the fake recovery agent becomes uncontactable. This type of fake recovery scam is also known as an advanced fee fraud: the victim pays a fee for something which will never happen. Double scams like this are often disguised by the scammer as being a fee for AML checks, money laundering checks, tax payments, or fee for withdrawals.

The result of being scammed in these ways is often devastating for the victim, who is often left with a large financial hole, and continues to be harassed on a sometimes-daily basis by the fraudsters, using all manner of methods to try to extract further funds. In almost all our crypto cases, someone who has been scammed once, we will be approached at least one further time. It is very often in crypto cases that victims are embarrassed to admit that they have been caught up in such scams – as a result they often feel unable to speak with family members or admit the truth of what has happened.

Legal Recovery Procedures and the options now available to victims

We have seen a significant rise in crypto recovery cases in 2023/24. As specialist crypto lawyers, we are working on new and innovative ways in which to ensure a recovery of funds is secured for victims.

Scammers in this sector may operate in the form of serious organised criminal gangs, who have significant links with terrorism, child exploitation and human trafficking. The problem is significant, to put it at its lightest. These gangs are causing untold harm to livelihoods across the globe and our team have been involved in some of the UK's leading cases in this field.

• HTX/Huobi – the striking off from the Seychelles Companies Register and the attendant "decentralisation" process has resulted in the Courts widening the scope of entities being held to be proper defendants.
• Some of the world's largest cryptocurrency exchanges have being innocently caught up in very serious criminal activities. The Court's approach to exchanges in such circumstances is to make information orders in line with the 2023 English High Court case of Piroozzadeh.
• Dishonest assistance – such claims against the exchanges particularly arise if there has been a blanket refusal to respond to information orders.
• Recent judgments – notwithstanding the refusal of some exchanges to not respond to information orders, there are notable examples of some exchanges providing helpful assistance from the first notification they received. It is essential that such knowledge is utilised such that working with the exchanges is progressed so as to seek a swift resolution.
• Disclosure/Discovery – in our experience, there are marked differences in the approaches by exchanges: some are helpful from the off; whilst others simply ignore Court orders.
• Enforcement – third party debt orders, committal proceedings, enforcement overseas are all part of the weaponry which is available to a successful claimant who has obtained a judgment. It is a technical and complex area, which requires amending claims to go as against the exchanges for failure to comply with information orders and thereby providing grounds to seek accessory liability against the exchanges themselves.

• Alternative service of proceedings creates the ability for the claimants' experts to ascertain exactly when documents have been downloaded; which is an important forensic development in relation to the additional benefit of being able to prove actual (as opposed to deemed) service.
• Anonymity orders – our team have recently secured two such Orders, which are exceptional and require careful preparation and presentation.
• Assigning claims – claims may be advanced which have been assigned to English-domiciled companies.
• Jurisdictional gateways are a regular feature of service overseas of such claims and we strive to locate an Irish-domiciled defendant such that it provides an anchor defendant, which is sufficient, so long as it can be shown that the overseas defendants are necessary and proper parties.
• FCA regulated exchange –proceedings have been issued against them in the UK as a result of regulatory breaches; which is an increasingly important redress route for victims of crypto fraud.
• Limitation - there are various potential limitation pitfalls to avoid, which require careful consideration as to the precise causes of action and remedies which are chosen to be advanced: usually, from an equity and restitutionary perspective.

What does 2024/25 hold – the future

The future of cryptocurrency in 2024/25 is yet to be defined, but the sector must remain vigilant in addressing issues around artificial intelligence, the scope of fraud currently operating within the market, and the regulatory compliance issues which will increase considerably. The evolution of digital assets will continue on an upward trend, and with the possible introduction of Central Bank Digital Currencies still on the horizon, there is a growing acceptance in the rise of digital assets. However, as the crypto industry continues to grow and develop, so does the sophistication and risk of the fraud we are seeing.

The decentralised finance space continues to mature and develop. With the introduction of new regulation, and a push from the Government back towards centralisation, we are likely to see new spaces and opportunities. As DeFi becomes more accessible, traditional financial institutions are going to need to adapt their financial policies to keep up with the market.

The remainder of 2024 and 2025 is likely to see a more joined up crypto sector, offering more security and more opportunities for investment. Digital assets, in one shape or another, are here to stay, and anyone looking to invest in this space must take great care. For legal advice requirements or if you have a victim of a scam, please contact Michael Muldoon on +35316599405 or by email – michaelmuldoon@mchalemuldoon.ie