Deposits in Crypto Currency Accounts that cannot be Withdrawn

Last edited 16 days ago by Ted Broomfield

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Summary: Crypto Currency is among the most significant technological developments between the years of 2009 and through the date of this article. An extremely serious and very common problem is that owners of crypto currency accounts may not be able to withdraw funds. The most common reasons for this are: (1) bankruptcy; and (2) fraud. For Bankruptcy, see my blog on a

Creditor’s Basics of Bankruptcy⁠

. Unfortunately, with respect to fraud, victims frequently have no remedy, because the people or company responsible for fraud are located in Russia, China, or some other place where the United States law cannot reach. Regardless of the ability to obtain a remedy, it is prudent to register/file your complaint with your local police department, the California Attorney General, and the Federal Bureau of Investigation’s

Internet Crime Complaint Center⁠

(ic3.gov). A very clear sign of fraud is when the company that holds the cryptocurrency demands additional deposits in order to withdraw - DO NOT DEPOSIT MORE MONEY. Details follow.

Background - The Cryptocurrency market is large, fast growing, and unregulated

Cryptocurrency is a type of digital currency that generally exists only electronically. You usually use your phone, computer, or a cryptocurrency ATM to buy cryptocurrency. Bitcoin and Ether are well-known cryptocurrencies, but there are many different cryptocurrencies, and new ones keep being created.

Cryptocurrency is bought through an exchange, an application, a website, or a cryptocurrency ATM. Some people earn cryptocurrency through a complex process called “mining.” Mining refers to using computers to solve math problems that are necessary to the overall technological system of cryptocurrency.

Cryptocurrency is stored in a digital wallet, which can be online, on your computer, or on an external hard drive. A digital wallet has a wallet address, which is usually a long string of numbers and letters. If something happens to the wallet or the cryptocurrency funds, for example if like the online exchange platform goes out of business, cryptocurrency is sent to the wrong person, the password to the digital wallet is lost, or the digital wallet is stolen or compromised, there may be no way to recover the funds.

Cryptocurrency held in accounts is not insured by a government like U.S. dollars deposited into an FDIC insured bank account.

The value of a cryptocurrency can change rapidly, even changing by the hour. And the amount of the change can be significant. It depends on many factors, including supply and demand. Cryptocurrencies tend to be more volatile than more traditional investments, such as stocks and bonds. An investment that’s worth thousands of dollars today might be worth only hundreds tomorrow. And, if the value goes down, there’s no guarantee it will go up again.

Crypto Currency Fraud is Prevalent and Costly

As the use of cryptocurrency in the global financial system continues to grow, so too does its use by criminal actors. In 2023, the Federal Bureau of Investigation (FBI) Internet Crime Complaint Center (IC3) received more than 69,000 complaints from the public regarding financial fraud involving the use of cryptocurrency, such as bitcoin, ether, or tether. Estimated losses with a nexus to cryptocurrency totaled more than $5.6 billion. While the number of cryptocurrency-related complaints represents only about 10 percent of the total number of financial fraud complaints, the losses associated with these complaints account for almost 50 percent of the total losses.

Common Types of Scams

Fake exchanges and fake wallets mimic legitimate platforms and fool unsuspecting users into depositing their funds into non-existent platforms. These often rely on accomplices, either knowing accomplices or unwitting accomplices, who the victim may meet online and try to “help,” the victim learn the platform or trading skills.

Ponzi and pyramid schemes promise very large returns and low risk. By corruptly relying on funds from new investors to pay returns to earlier investors, they create the illusion of profitability.

Phishing scams include spam emails, bogus websites, and messages designed to trick you into providing your private keys, passwords, and sensitive information.

Malware and hacking are used to steal from users’ crypto asset wallets or exchange accounts. This can include malware-infected software, phishing links, or hacking into poorly secured exchanges or wallets.

Civil Remedies for Cryptocurrency Disputes

As a practical matter, the possibility of recovering money lost through cryptocurrency scams or bankruptcy is remote.

Three choices to resolve civil disputes: (1) negotiate; (2) sue; (3) live with it

Technically, the choices with a cryptocurrency dispute are the same as any other dispute: (1) convince the opposing party to actually do something you want; (2) win a lawsuit or arbitration and obtain a written and enforceable order that the opposing party to actually do something you want; (3) do nothing, live with the status quo and accept the consequences.

The imperfect nature of dispute resolution often leads to less than full remedy for the victim

Each of those three remedies tends to lead to imperfect results for several reasons. The primary reason that dispute resolution tends to lead to one side getting less than a full remedy is that a dispute is usually caused by a “bad actor,” meaning someone who has broken the rules, meaning they will continue to break the rules. And this leads to the second reason that dispute resolution leads to one side getting less than a full remedy, the “bad actor,” meaning a rule breaker uses procedures to delay and make obtaining a remedy costly. This leads to a third the third reason that dispute resolution leads to one side getting less than a full remedy, the systems that exist to help victims obtain a remedy are imperfect and costly, as well as directed and operated by imperfect and self-interested people. In other words, dispute resolution is an industry that generates profit from others’ losses. Add to this that the judicial policy is to “settle,” meaning take less than a full remedy for the benefit of unburdening the dispute resolution industry, victims almost always end up getting less than they deserve.

Cryptocurrency dispute resolution is worse: (1) fraudsters are not reachable; (2) liability of accomplices is difficult to prove and accomplices usually have no money to get

With Cryptocurrency, the situation is even worse.

In the event of fraud, almost all the perpetrators of Cryptocurrency fraud are physically located in places where the U.S. law cannot reach them, like China, Russia, North Korea and the like. There is simply no way to reach these individuals or companies.

Next, many victims naturally look to others than may be held liable, like the accomplices that the victims met online, but who are often real people, who have provided real identification and who introduced the victim to the platform, and in some cases taught the victim how to use the platform.

Unfortunately, these accomplices are not good sources of recovery, because liability is difficult to establish, and almost certainly, the accomplices have no money to get.

Contrary to what victims think, liability of the accomplices would be difficult to establish. To the extent that the accomplices are knowingly participating in a fraud, those accomplices already have excuses and alibis crafted - the accomplices say that they lost money too; the accomplices say that they did not solicit the victim, weren’t paid by the victim, and the accomplices were only trying to help the victim. The accomplices report different accounts of what was specifically said or done that the victims. To the extent that the victim has recorded the voice, or captured images of the accomplice, in California, under Penal Code section

632⁠

, recording another person without that other person’s knowledge and consent is a crime and the recording is not admissible as evidence in any case, other than as evidence of the illegal recording.

Next, victims look to the banking system to seek remedy, on the theory that the banks are responsible for knowing who the fraudulent actors are. Unfortunately, case law does not support that theory. Although in some very limited specific circumstances, banks have been held liable for negligence in controls, the grand majority of cases have favored the banks.

In other words, the combination of the civil dispute system being imperfect and biased against victims, the nature of cryptocurrency disputes makes obtaining any remedy almost impossible, as a practical matter.

However, victims should still consider reporting the crimes.