If you’ve been scammed, it might seem like your crypto is lost forever. Decentralized blockchain wallets can’t be frozen in the way bank accounts can. And even if the scammer tries to cash out at a regulated exchange, the authorities may move too slowly to nab the funds before they are withdrawn.
But various private investigation firms do claim to have notched up success in recovering funds. Self-proclaimed ‘crypto crimestoppers’ Lionsgate Network, claims it has recovered at least $4 million in stolen and lost crypto funds.
Lionsgate says it uses connections with law enforcement in various US states and countries around the world to freeze and return stolen crypto to its owners.
Founder and CEO Bezalel Eithen Raviv told Cointelegraph that while it’s difficult to track and freeze funds, it’s not impossible. “Everything begins with analysis, as that's what we do,” he stated. “That’s our core service, and we do it with the most advantageous tech there is in [the] crypto space or blockchain analysis.”
Locating the funds is one thing, but recovering them is another.
“If you will take our analysis to a clerk at law enforcement, whether it's in the UK or US, you will get the same feedback, you will be misled and misinformed,” Raviv stated. The police will tell the victim that “your money is in China, your money is in Russia, or crypto can never get recovered.” However, Raviv says that most attackers do eventually attempt to cash out their stolen loot through a regulated exchange such as Binance.
“Mostly what we see is that the funds are being funneled to a centralized wallet through mixers, [...] after reviewing over $1 billion cases combined [most] are with Binance.”
However, once the scammed funds are on a centralized exchange, police need to act quickly to freeze the scammer’s account. To facilitate this process, Lionsgate forwards its analysis to cybercrime experts within the victim’s jurisdiction. This is surprisingly easy to do, he says.
How criminals start a pig butchering scam: Source: CFTC
“Any law enforcement agency has a Codex global internal messaging with each and every one of the custodian entities in crypto, any wallet or exchange, so they can basically subpoena it immediately, requesting that funds will be frozen until further KYC will be executed, and then the ball starts rolling in the right direction.”
Victims either send their reports to the wrong law enforcement personnel or have not done the preliminary work necessary to help the right personnel understand the case. As a result, they end up getting “ignored,” says Raviv. “If you go clueless to the police, they will completely ignore you,” he stated.
$100,000 recovered for Florida surgeon
Lionsgate claims to have recovered over $100,000 for a scam victim who worked as a surgeon in Florida. According to a report produced by the firm and shown to Cointelegraph, the surgeon was telephoned by “a seemingly charming Asian lady” who claimed to have “dialed the wrong number” and called him by accident.
The woman had lengthy personal conversations with the victim and eventually gained his trust, which she then used to convince him to invest in an “opportunity” by transferring $100,000 of his crypto to her wallet account.
The investment opportunity was fake, and Lionsgate later determined that the caller was “part of a larger organized crime network designed to steal funds and obscure their tracks.” The $100,000 represented a substantial part of the surgeon’s life savings.
This type of scam, in which the scammer uses dating or social media sites to lure a victim and convince them to invest in a fake long-term investment scheme, is often called a “pig butchering scam.” It commonly promises a high rate of return from a cryptocurrency project, but the project is often nonexistent or doesn’t deliver on its promises.
Lionsgate traced the funds to a wallet containing over $30 million of cryptocurrency, which likely represented the takings from multiple scams by the criminal network. The surgeon then showed Lionsgate’s analysis with the scammer, who was still attempting to solicit funds from the victim. Faced with blockchain evidence and fearing “potential legal consequences,” the scammer returned the $100,000.
$1.7M crypto located
In a separate report, Lionsgate claimed to have traced $1.7 million worth of crypto for an investment banker in North Carolina. The victim was approached by a woman on Facebook who claimed to be looking for friends. Over time, the woman gained the banker’s trust and convinced him to invest $5,000 in a crypto trading scheme. Fake “profits” helped convince the banker to invest progressively more funds into the project until he’d tipped in $1.7 million. He then realized the trades were fake and that his crypto had been stolen.
Lionsgate says it has traced the funds to their ultimate location but has not yet been able to recover them. However, it has turned the case over to the United States Department of Homeland Security (DHS), which is continuing to investigate.
Lionsgate initially sought help from both the victim’s local police department and the U.S. Federal Bureau of Investigation, but they “overlooked” the case. So it “took the story to the press to garner attention,” which ultimately resulted in the DHS offering to help.
Funds cannot always be recovered
Raviv cautioned scam victims that the firm can’t always recover funds, especially if the police won’t cooperate. “One of the things that we cannot do for any of our clients is guarantee that law enforcement will do their job.” But he thinks law enforcers are entering a “new era” where they are increasingly willing to collaborate with private firms to help fraud victims.
In April, Cointelegraph spoke to the founders of Crypto Asset Recovery, a firm that specializes in recovering lost seed words and private keys. One of the founders, Charles Brooks, stated that when funds are stolen from users (as opposed to merely being lost), there is “a very low likelihood of recovery.” Even so, the firm offers a similar blockchain analytics service that can provide reports on the movement of stolen funds to law enforcement.
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Crypto scams continue to pose a threat to crypto users and the wider investing public. On Sept. 12, the United States Commodities and Futures Exchange (CFTC) warned investors that crypto pig butchering scams are becoming more prevalent. On Sept. 19, the US Securities and Exchange Commission (SEC) charged five entities and three people in connection with two crypto exchanges it claimed were completely fake. It claimed the two projects had stolen more than $3.2 million from victims
Today we charged multiple entities and individuals in connection with two relationship investment scams involving fake crypto asset trading platforms NanoBit and CoinW6, respectively. https://t.co/TSNv0X8aN8 pic.twitter.com/cSPhTQt3Aj
— U.S. Securities and Exchange Commission (@SECGov) September 17, 2024