Robert Appleton Publishes Article in Bloomberg Law on Recovering Assets Lost to Cryptocurrency Theft and Fraud
Bloomberg Law published an article authored by Olshan litigation partner Robert Appleton and George McEachern entitled “How to Recover Assets Lost to Cryptocurrency Theft and Fraud.” The article explores how cryptocurrency investors might respond and recover assets lost to fraud or theft, especially with crypto fraud losses growing exponentially in the past year. “Many investors are falling victim to classic frauds updated for the Web3 age,” the authors explain, “such as crypto investment schemes promoted by fake influencers or scammers posing as investment advisers. Other new types of hacks, thefts, and fraud exploit the continued rise of decentralized finance, where criminals try to exploit blockchains or smart contracts. Formerly licensed and unlicensed investment managers soliciting investment in crypto projects and others continue to prey on unwary investors.” Mr. Appleton and Mr. McEachern observe that cryptocurrency’s main purpose of providing investors a way to directly transfer assets, across borders and circumventing the banking world, is undermined by the absence of regulatory oversight and FDIC protection: “Unlike some exchanges that might collect know-your-customer information, private digital wallets are essentially owned by individuals with no requirements to provide personal identification information, which is most often used to evaluate ultimate beneficial ownership of an individual or entity.” However, they write, because the blockchain, where cryptocurrency is transacted and transferred, is essentially public information, court authorizations are not required for investigators to conduct a thorough tracing of cryptocurrency. Even when malefactors use chain-hopping to disguise the flow of stolen funds, “with the transaction IDs of a victim’s assets, the movement of stolen and misappropriated funds can be traced.” Even many crypto exchanges outside the US lacking know-your-customer requirements are voluntarily collecting information. The authors conclude that “investigations are more successfully tracing and compelling exchanges to identify account holders, balances, and transactions. In recent investigations undertaken by the authors, exchanges have been served with subpoenas and some have indicated a willingness to cooperate. Victims also have the option of engaging law enforcement to help.” The authors have significant real experience investigating crypto fraud on behalf of victims and exchanges and also in the bankruptcy context and have recovered millions in misappropriated crypto tokens.