Prosecution Of Cryptocurrency Theft, Scams, And Digital Fraud
⚖️ OVERVIEW: PROSECUTION OF CRYPTOCURRENCY THEFT & FRAUD
1. Nature of Cryptocurrency Crimes
Cryptocurrency crimes typically fall into several categories:
Theft – hacking wallets, exchanges, or stealing private keys.
Scams – Ponzi schemes, rug pulls, fake ICOs, phishing, etc.
Digital fraud – deceptive use of blockchain technology for unlawful gain.
2. Challenges in Prosecution
Anonymity and pseudonymity of crypto transactions make tracing offenders difficult.
Jurisdictional issues: crimes may involve victims and servers in multiple countries.
Regulatory gaps: some countries still lack clear definitions of cryptocurrency as “property” or “money.”
3. Common Legal Bases
Prosecutors often use:
Theft laws (if cryptocurrency is recognized as property).
Fraud statutes (false representation, misappropriation).
Anti-money laundering (AML) and cybercrime laws.
Securities laws (in cases of fraudulent ICOs).
🧑⚖️ IMPORTANT CASES IN DETAIL
Case 1: United States v. Ross William Ulbricht (2015) – “Silk Road Case”
Jurisdiction: United States District Court, Southern District of New York
Key Issue: Use of Bitcoin for illegal online marketplace transactions
Facts:
Ross Ulbricht operated Silk Road, a darknet marketplace where users traded illegal drugs and services using Bitcoin for anonymity. The FBI shut down the platform and seized over 144,000 Bitcoins.
Legal Basis:
Charged under narcotics trafficking, computer hacking, and money laundering statutes.
Bitcoin was treated as a medium of exchange facilitating crime.
Outcome:
Ulbricht was convicted and sentenced to life imprisonment without parole. The court emphasized that digital currency is not immune from criminal laws, and that proceeds of crime in crypto form can be seized and forfeited like traditional assets.
Significance:
First major recognition of Bitcoin as property subject to forfeiture.
Demonstrated the traceability of Bitcoin despite pseudonymity.
Case 2: United States v. Jeremy Spence (2022) – “BitMEX or Coin Signals Case”
Jurisdiction: U.S. District Court, Southern District of New York
Key Issue: Cryptocurrency investment fraud (Ponzi scheme)
Facts:
Jeremy Spence (alias Coin Signals) solicited investments in several crypto funds, promising returns up to 148%. He falsely reported profits to attract more investors and used new deposits to pay earlier ones — a classic Ponzi scheme.
Legal Basis:
Charged with wire fraud and commodities fraud under federal statutes.
Outcome:
Spence pleaded guilty and was sentenced to 42 months in prison and ordered to pay restitution.
Significance:
Established that misrepresentation in crypto investment schemes falls squarely under fraud laws.
Reinforced that crypto assets are “commodities” for the purpose of U.S. fraud prosecution.
Case 3: R v. Teresko (2017, UK) – Bitcoin as Property
Jurisdiction: Crown Court at Southwark, United Kingdom
Key Issue: Money laundering and possession of criminal property
Facts:
Sergey Teresko was arrested after police found large amounts of cash and Bitcoin linked to online fraud and drug trafficking.
Legal Basis:
Charged under the Proceeds of Crime Act 2002 (UK).
Question: Could Bitcoin be treated as “property” subject to seizure?
Outcome:
Court held that Bitcoin constitutes property under UK law and can be confiscated.
Significance:
Confirmed cryptocurrency’s legal status as property.
Enabled British authorities to seize digital assets obtained through criminal conduct.
Case 4: State of New York v. Ilya Lichtenstein & Heather Morgan (2022) – “Bitfinex Hack”
Jurisdiction: U.S. Department of Justice / SDNY
Key Issue: Laundering stolen cryptocurrency from a major exchange hack
Facts:
Hackers stole nearly 119,754 Bitcoins from the Bitfinex exchange in 2016 (worth over $4.5 billion in 2022). Lichtenstein and Morgan laundered the funds using complex techniques — mixing, fake identities, and darknet transactions.
Legal Basis:
Charged with conspiracy to commit money laundering and defrauding the United States.
Outcome:
The couple pleaded guilty in 2023. The U.S. recovered a record-breaking $3.6 billion in Bitcoin, marking one of the largest crypto seizures ever.
Significance:
Showed that even complex crypto laundering can be traced and prosecuted.
Emphasized cooperation between law enforcement and blockchain analysis tools.
Case 5: India – Nishad Sharma & Ameerpet Case (2018–2021) – “GainBitcoin Scam”
Jurisdiction: Central Bureau of Investigation (CBI) & Enforcement Directorate (India)
Key Issue: Ponzi scheme involving Bitcoin investments
Facts:
GainBitcoin, led by Amit Bhardwaj and associates, promised investors 10% monthly returns through Bitcoin mining. It defrauded thousands of people across India, collecting over ₹2,000 crores (~$300 million).
Legal Basis:
Charged under:
Indian Penal Code (Sections 420 – Cheating, 406 – Criminal Breach of Trust)
Information Technology Act
Prevention of Money Laundering Act (PMLA)
Outcome:
The accused were arrested and assets worth crores were frozen. ED seized wallets and traced crypto transfers to offshore exchanges.
Significance:
One of India’s largest crypto fraud prosecutions.
Reinforced that traditional fraud and AML laws apply to crypto scams.
📘 LEGAL PRINCIPLES EMERGING FROM THESE CASES
Cryptocurrency is “property” and can be seized or forfeited.
Fraud and money laundering laws apply equally to digital assets.
Blockchain traceability provides strong evidence in court.
Cross-border cooperation is essential for digital asset recovery.
Regulation is catching up, with prosecutors increasingly treating crypto like any other financial instrument.
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