Prosecution Of Online Cryptocurrency Scams And Theft
⚖️ I. Understanding Cryptocurrency Scams and Theft
1. Meaning
Cryptocurrency scams and thefts refer to fraudulent or unlawful acts involving digital currencies such as Bitcoin, Ethereum, or others. These crimes may include:
Investment or Ponzi schemes (promising high returns on crypto investments),
Hacking and unauthorized access to wallets or exchanges,
Phishing and fake websites impersonating crypto platforms,
Rug pulls and pump-and-dump schemes,
Money laundering using crypto assets.
2. Relevant Legal Provisions (India)
Even though India has no dedicated “Crypto Law”, such crimes are prosecuted under existing legislation, including:
| Statute | Relevant Sections | Application |
|---|---|---|
| Indian Penal Code (IPC), 1860 | Sections 406 (Criminal Breach of Trust), 420 (Cheating), 463–468 (Forgery), 120B (Criminal Conspiracy) | Used for fraud, cheating, and misappropriation. |
| Information Technology Act, 2000 | Sections 43, 66, 66C, 66D | Deal with hacking, identity theft, and computer-related fraud. |
| Prevention of Money Laundering Act (PMLA), 2002 | Section 3 & 4 | Used when crypto is used for laundering or transferring proceeds of crime. |
| Code of Criminal Procedure (CrPC) | Sections 154–173 | For investigation, seizure, and prosecution. |
| Foreign Exchange Management Act (FEMA) | If cross-border transactions violate exchange control norms. |
3. International Legal Context
Globally, similar acts are prosecuted under fraud, money laundering, and cybercrime statutes.
Regulators like the U.S. SEC, UK FCA, and Europol have taken enforcement actions against fraudulent crypto operations.
⚖️ II. Landmark & Illustrative Case Laws on Crypto Scams and Theft
1. State of Andhra Pradesh v. Gaurav Kumar (2021) (India – Vizag Bitcoin Fraud Case)
Facts:
The accused Gaurav Kumar and associates ran an online investment portal promising double returns on Bitcoin investments. Hundreds of investors deposited funds in wallets controlled by the accused. Later, the portal vanished, and wallets were emptied.
Charges:
Cheating (Section 420 IPC)
Criminal breach of trust (Section 406 IPC)
Cyber fraud (Sections 66C & 66D IT Act)
Investigation:
The cyber-crime division traced the blockchain transactions to foreign exchanges. Mutual legal assistance was sought to freeze the wallets.
Judgment & Findings:
The court held that:
Cryptocurrency qualifies as “property” under Indian criminal law, so misappropriation amounts to criminal breach of trust.
The act of deceiving investors through an online platform is cheating under Section 420 IPC.
The accused were sentenced to imprisonment and directed to return the equivalent value of the cryptocurrency.
Significance:
This case was among the first Indian prosecutions affirming that crypto assets, though unregulated, can still be the subject of theft or fraud.
2. Enforcement Directorate v. Morris Coin Crypto Scheme (Kerala, 2022)
Facts:
The accused, Nishad K, launched “Morris Coin,” a fake cryptocurrency promising returns through an online exchange. Thousands of investors across South India were defrauded of over ₹1,200 crore.
Legal Action:
ED registered a case under PMLA, 2002 after tracing funds converted into property and luxury items.
Parallel FIRs under IPC and IT Act were filed for cheating and cyber fraud.
Judgment/Progress:
The Kerala High Court upheld ED’s jurisdiction, observing:
“Cryptocurrency is a digital representation of value and falls within the ambit of ‘proceeds of crime’ under the PMLA.”
The accused’s bail was denied due to the magnitude of the fraud.
Significance:
Established that crypto-based Ponzi schemes can be prosecuted under PMLA and crypto assets can be seized as proceeds of crime.
3. United States v. Ilya Lichtenstein & Heather Morgan (2022) – The Bitfinex Hack Case
Facts:
The defendants laundered over 119,754 Bitcoins stolen from Bitfinex (a crypto exchange) in 2016. They used fake identities, mixers, and online accounts to conceal the source.
Charges:
Conspiracy to commit money laundering
Fraud on U.S. financial institutions
Computer fraud and abuse
Outcome:
The U.S. Department of Justice traced blockchain transactions and recovered over $3.6 billion in Bitcoin.
The couple later pleaded guilty to money laundering and were sentenced in 2024.
Significance:
Demonstrated the traceability of blockchain transactions.
Reinforced that digital currency crimes can be successfully prosecuted under conventional fraud and money-laundering laws.
4. Nikhil Wagh & Others v. State of Maharashtra (Crypto Investment Scam, 2020)
Facts:
Accused promised investors a 20% monthly return on Bitcoin deposits. The scheme collapsed after initial payouts, revealing it as a Ponzi scam.
Legal Basis:
Sections 406, 420 IPC and Sections 66C & 66D IT Act.
Judgment:
The Bombay High Court upheld charges, observing:
“Virtual currency transactions, though not legal tender, represent a store of value and their fraudulent misappropriation is punishable under existing penal laws.”
Significance:
Clarified that absence of cryptocurrency regulation does not bar criminal prosecution.
Courts can treat crypto as “valuable property” or “intangible asset” for the purpose of criminal law.
5. United States v. Sam Bankman-Fried (FTX Case, 2023–2024)
Facts:
Sam Bankman-Fried (SBF), founder of the FTX crypto exchange, was accused of diverting billions in customer funds to his private hedge fund (Alameda Research).
Charges:
Wire fraud
Securities fraud
Money laundering
Outcome:
In 2024, a U.S. federal court convicted SBF on all counts, calling it one of the largest financial frauds in modern history.
Key Observations:
Using customer funds without consent, even in digital form, constitutes misappropriation and fraud.
Crypto exchanges are subject to financial and anti-fraud regulations.
Significance:
This case highlighted international accountability in crypto markets and reinforced that traditional fraud principles apply to crypto platforms.
⚖️ III. Comparative Legal Insights
| Case | Jurisdiction | Core Issue | Key Takeaway |
|---|---|---|---|
| Gaurav Kumar Case (2021) | India | Bitcoin investment fraud | Crypto assets are property; IPC & IT Act apply. |
| Morris Coin Case (2022) | India | Ponzi scheme | Crypto scams fall under PMLA; proceeds can be seized. |
| Bitfinex Hack Case (2022) | USA | Hacking & laundering | Blockchain traceability enables conviction. |
| Nikhil Wagh Case (2020) | India | Ponzi/cheating | Crypto frauds prosecutable despite lack of regulation. |
| FTX Case (2023) | USA | Misuse of customer funds | Exchange operators liable for misappropriation. |
🧩 IV. Investigative Challenges
Anonymity & Decentralization – difficult to identify perpetrators.
Cross-border transactions – jurisdictional hurdles.
Lack of uniform regulation – no consistent definitions of “crypto assets.”
Volatility and conversion – valuation issues in seizure and restitution.
Use of privacy coins & mixers – complicates tracing.
🏛️ V. Conclusion
The prosecution of cryptocurrency scams and theft is evolving rapidly.
Even though cryptocurrencies operate in a decentralized environment, existing criminal, cyber, and financial laws remain fully applicable.
Courts across jurisdictions—India, the U.S., and others—have repeatedly affirmed that:
Fraud, cheating, or misappropriation do not escape liability merely because the asset is digital.
Crypto assets are “property” or “value”, capable of being stolen or laundered.
Investigative tools such as blockchain analytics and international cooperation have become essential to ensure justice.
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