Cryptocurrency Theft

It's the Wild West in the cryptocurrency world. Unlike old-time bandits who carried guns, many thieves today carry computer mice. But make no mistake— perils lurk in the boomtowns on this new frontier. The sheriff on watch may be dozing off beneath a wide-brimmed hat.

Cryptocurrencies are virtual tokens that can be used to buy things. Resembling money, they attract the attention of computer-savvy thieves. Cryptocurrency exchanges allow people to buy and sell Bitcoin, Ethereum, and other digital coins.

Read on to learn more about cryptocurrencies, cryptocurrency theft, and how it can impact you.

What Is Cryptocurrency?

Cryptocurrencies represent virtual currencies. They are a digital representation of value. Cryptocurrency owners may exchange their cryptocurrencies for other things of value.

Bitcoin is perhaps the most well-known cryptocurrency. Technically, Bitcoin is an “open source peer-to-peer payment system." Bitcoin's currency is also known as Bitcoin. The payment system records an individual Bitcoin's transactions. The Bitcoin blockchain is public to all Bitcoin owners and is used to verify ownership.

The Financial Industry Regulatory Authority (FINRA) provides more information about Bitcoin.

The Problem of Cryptocurrency Theft

The rise of cryptocurrency brought with it the rise of cryptocurrency crimes. Thieves steal over a billion dollars worth of Bitcoins and other virtual currencies each year. This includes hacks, scams, and fraudulent "initial coin offerings."

In several well-publicized cases, hackers have burglarized cryptocurrency exchanges. In one instance, thieves reportedly stole over $400 million of cryptocurrency. Cybercriminals can be prosecuted for cryptocurrency fraudcomputer crimes, and other offenses.

What About Insurance?

Can insurance play a role here? Some insurers have begun offering policies to protect against digital currency heists. These risk-lessening products may help spur the growth of the budding cryptocurrency industry. Other insurers are hesitant to enter this volatile and unsettled new market.

Who's in Charge?

Who creates the rules on the cryptocurrency frontier? Most state and local governments have taken a hands-off approach to preventive regulation. But there are noteworthy exceptions. New York, for example, imposes a licensing requirement on cryptocurrency exchanges and other digital-coin businesses.

At the federal level, the Securities and Exchange Commission (SEC) has begun to wade into regulating some aspects of this emerging financial area. Through various agencies, the federal government has also issued warnings about the risks cryptocurrencies pose, particularly from an investment standpoint.

Commodity Futures Trading Commission

The United States Commodity Futures Trading Commission (CFTC) was created in 1974. Its mission is to promote “the integrity, resilience, and vibrancy of the U.S. derivatives market through sound regulation." It works with the Department of Justice (DOJ) to investigate the following crimes, among others:

The CFTC regulates both securities and commoditiesDerivatives are financial contracts that derive their value from an underlying asset. Examples of derivatives include stocks and bonds. Commodities refer to futuresoptions, and swaps.

The Commodities Exchange Act (CEA) classifies Bitcoin and other virtual currencies as commodities. The CFTC has jurisdiction when someone uses a cryptocurrency in a derivatives contract. It also has jurisdiction if “there is fraud or manipulation involving a virtual currency traded in interstate commerce." The CFTC website offers information and advisories regarding digital assets.

Examples of Cryptocurrency Crimes

The following examples may help you better understand how the CFTC regulates cryptocurrency transactions. Given how new digital assets are, developing fair digital markets is critical to the CFTC. The Federal Bureau of Investigation (FBI) and relevant U.S. Attorney's Offices often assist in these criminal investigations.

Cryptocurrency Ponzi Scheme

In 2019, the CFTC filed a civil action against a Nevada man and his company. They alleged he ran a Ponzi scheme by misappropriating funds through his company. Specifically, he allegedly solicited $11 million in Bitcoins and money from clients. He had reportedly promised to use the money and cryptocurrency to trade options and digital assets. However, he allegedly kept the money in a digital wallet and paid clients out of the wallet instead of trading as promised.

FTX Scandal

FTX was a digital asset trading platform created in 2019. It allowed users to exchange their cryptocurrency for other digital assets or money. FTX became popular because it allowed users to store and deposit cryptocurrencies into a personal account. By January 2022, FTX was worth $32 billion.

Bitcoin's value dropped dramatically in late 2021 and early 2022. In November 2022, many of FTX's customers attempted to withdraw money from their accounts. The problem was that FTX had insufficient assets to handle $8 billion of withdrawals. FTX filed for bankruptcy soon after.

The federal government charged FTX's owner, Sam Bankman-Fried, with the following:

A jury convicted Bankman-Fried of all charges in November 2023.

Have Questions About Cryptocurrency Theft? Speak With a Lawyer

If a cryptocurrency thief has victimized you, contact a consumer protection attorney. They may be able to help you recover your losses.

If the government accuses you of a cybercrime, contact a criminal defense lawyer. A criminal defense attorney can provide you with legal advice regarding the following:

  • Federal laws regarding cryptocurrency
  • How hackers use malware, ransomware, and social media to steal digital assets
  • General details on fraud charges, such as mail fraud and securities fraud
  • Specific information and legal defenses to your criminal charges
  • Information about blockchain technologies

If the government has charged you with cryptocurrency theft, contact a criminal defense attorney today.

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