Like many other victims of cryptocurrency scams, this Southern California man's story began the same way: an unsolicited text message from someone who said they had the wrong number at the end of 2021. A text message a few weeks later, the Forbes- approved man had to recognize one his initial "M" realized he had been conned and lost over $500,000, 10 years of his financial savings.
M immediately went to the local police department, which refused to press charges and told him to go to federal authorities instead.
After a few weeks, M becomes frustrated that the case is not moving fast enough with conventional law enforcement. So he turned to CipherBlade, a company that claims to have recovered "millions of dollars in stolen cryptocurrency." M signed a contract with the company and agreed to pay $6,500 for "up to" 10 hours of work. If CipherBlade helps them get some of their money back, they'll also get 12.5%. But now it's been over a year and M still hasn't paid a dollar.
“Almost all of these private services require payment up front regardless of the outcome. The reason is obvious: if they don't receive the funds until the victim has actually recovered their losses, most of them will go bankrupt very quickly.
Hog Slaughter, as it is known, is a new type of online scam perpetrated by offshore fraudsters who "fatten" victims into thinking they have made a fortune trading cryptocurrencies, often using custom-built apps and websites, before they are all gone. burnt. Money. Experts say that billions of dollars are lost every year due to these types of malicious systems.
The hard truth is that recovering money lost to crypto scams is extremely rare, even when law enforcement agencies are pursuing a case. But in recent years, a thriving industry has emerged that offers services that promise to do just that. These companies trick consumers into spending more to recover lost funds without proving that they will work permanently as advertised.
Several US financial and law enforcement agencies, including the Federal Trade Commission and the Commodity Futures Trading Commission, typically advise scam victims to treat these services with a healthy dose of skepticism. Even if one of these companies is involved, law enforcement should still conduct its own independent investigation, which will not prosecute the victim. Additionally, no private company has the authority to enforce freezing, let alone confiscation, cryptocurrency held on exchanges.
“In reality, [these remediation companies]' services often don't go beyond what consumers can do on their own free of charge, such as B. Filing a complaint with [DFPI] or other regulatory agency or law enforcement authority 2022 Regulatory Update. California Department of Financial Protection and Protection Recommendations Innovation.
CipherBlade's head of operations and finance Matthew Greene emailed Forbes , saying his company is an "exception to the general rule" that most of these companies are fraudulent or incompetent.
Similarly, Max Handler, vice president of Coin Dispute Network, says that while competitors "offer a lot of junk," his company is a " trusted source of crypto expertise" that people can turn to.
However, Tony Moore, a detective with the Los Angeles County Sheriff's Department who investigates cryptocurrency-related crimes, said he met at least a dozen scam victims who reported such crimes to his agency after they hired one of them. He said he advised victims not to take it.
"I always tell them no," he told Forbes . “You will pay for what I did. You can't believe it. They will spend your money to get your money back, and that's exactly what we're doing here.
Forbes spoke to 11 former and potential customers of these five companies, including CipherBlade, CNC Intelligence, Coin Dispute Network and others, who said they were either paid thousands of dollars or asked to pay the same amount and got almost nothing in return. .
In the case of CNC Intelligence, an Israel-based company that claims to be an "industry leader in resources and recovery," Forbes turned to a Colorado man who lost $1.6 million killing pigs. He told Forbes that CNC has so far been unable to pursue his case.
"The recovery process appears to be long and arduous," he wrote. "I hope for the best, but I don't have much to say at the moment."
Although imitating the company's announcement, Roman Garcia, head of global investigations at CNC Intelligence, admits that vacuum cleaners are rare.
"There's no way you're going to get that [money] back," he said. The former FBI special agent told Forbes that hits are so rare that he's only aware of 10 successful cases "out of a few hundred" in the nearly two years he's worked for the company, despite the site's bold claims. Company website that "Customers get the best value for their hard earned money."
Binance, the world's largest cryptocurrency exchange, is also against these companies.
"Nearly all of these private services require payment up front regardless of the outcome," the company wrote last year. "The reason is clear: if they don't receive the money until the victims have actually recovered their losses, most of them will soon go bankrupt."
Paul Sibenik, senior records manager at CipherBlade, told Forbes that his company "doesn't have the capability to self-recovery" and that "we usually ask people to come in with low expectations."
But the correspondence between Sibenik and M that was shared with Forbes did not mention those "low expectations". Indeed, Sibenik M said the case was "not very complicated from a forensic point of view". M took the statement to mean that using CipherBlade increased his chances of recovery. But he hasn't seen a penny yet.
CipherBlade's Greene went on to explain that the company doesn't just take every case that comes through the door and doesn't promise a fix. "We do our best and currently reject about two-thirds of all applications on the basis that we do not believe participation will benefit the victim," he wrote.
Greene added, "The total amount we have helped recover in our company's history far exceeds and is many times the total amount we have ever received for our investigative work."
He wouldn't say how much the company actually recovered.
After the victim hires a company, signs a contract, and pays several thousand dollars, the victim provides the company with details of the crypto transaction. This data usually includes loss amount, transaction ID, wallet address and other related data. The company's analysts take this information and feed it into commercially available cryptocurrency tracking software, which then creates graphs showing where scammers are moving their money. This detection process usually takes a few hours or less.
"In general, data is not shared with private parties during ongoing police investigations, as this can reveal all possible investigative strategies."
In general, the sooner the crime is reported to law enforcement, the more likely it is that the cryptocurrency has not been redeemed and can eventually be traced back to a particular exchange and possibly recovered. But these companies usually don't have any particular superpower. In the case of CipherBlade, the company's website claims to use Chainalysis, a well-known blockchain analysis company that has been used by many law enforcement agencies. (Other recovery teams use Chainalysis and similar blockchain forensic software from competing companies.)
Chainalysis also allows anyone to take an online course for $800 and become "certified". (Chainalysis declined to confirm the fee for an annual license, but the Global Anti-Scam Organization (GASO), a victim advocacy group, told Forbes that it is accepting a $40,000 offer from Chainalysis in 2022.) Other blockchain companies such as The Intelligence Group, which offers a program called Qlue, offers a comparable $999 program to become a "Certified Crypto Investigator". The Blockchain Intelligence Group charges a GASO $6,000 per year for their tools.
Regardless, many recovery companies sell their access to these blockchain forensic tools. (Coin Dispute Network declined to describe the process, citing the "competitive nature of this new industry.")
These tools create a tree structure that allows investigators to track the movement of cryptocurrency and demonstrate how it happened from the victim of the scam to the scammer's account and then to the cryptocurrency exchange. Once funds are traced to exchanges, law enforcement can obtain “know your customer” or KYC information that can reveal the identity of potential criminal suspects.
From there, investigators took this chart and used it to create a written report detailing where the fraudulently obtained cryptocurrency went. These reports usually include details such as phone numbers associated with fraudsters, fake websites used to run the scam, and cryptocurrency exchanges that facilitated the flow of funds. Sometimes they explain what law enforcement can do to continue an investigation.
In short, it's a roadmap, but law enforcement is the only authority that can promote travel legally. CipherBlade claims to provide "highly actionable reports to law enforcement, effectively sending the case to them on a 'silver plate'."
"We've found that providing reports with the right information increases the likelihood that law enforcement will prosecute specific cases because it eliminates some technical and time-consuming work," Greene said by email.
But any law enforcement agency, local or federal, capable of self-monitoring of crypto would do so without relying on outside companies and without asking victims for money.
Shawn Bradstreet, special agent in charge of the US Secret Service field office in San Francisco, told Forbes that his agency “cannot rely on the analysis of these third-party companies when investigating crypto scams.
CipherBlade refuses to link Forbes with law enforcement agencies it claims to have developed a relationship with. Greene also told Forbes in an email that sharing contact information would "interfere with" law enforcement's "professional objectives."
Similarly, Matthew Stern, CEO and co-founder of CNC Intelligence, emailed Forbes and said the company is "working closely with law enforcement agencies in the United States and abroad to limit the harm that this malicious fraud is causing to innocent people." ."
However, he also declined to name the US law enforcement agencies that work with the company.
CipherBlade compared Forbes to two satisfied customers, one in North Dakota and one in Saudi Arabia. The two men whose identities were known to Forbes said they were grateful for the company's services. They said CipherBlade had helped them recover stolen cryptocurrency from hackers who tricked them into revealing their credentials.
In the case of the victim in Saudi Arabia, whom Forbes identified as "H", he lost an estimated $150,000 in cryptocurrency in 2021 after he was tricked into giving his username and password online. After CipherBlade did its analysis and found that the stolen funds ended up on Binance, CipherBlade claims it was finally able to recover the stolen amount, minus the $5,000 fee and 12% off the lost $150,000.
Erin Fracolli, head of intelligence and investigations for Americas at Binance, told Forbes that the company launched its own investigation into the matter after being tipped off by CipherBlade, frozen the accounts in question and confronted suspected fraudsters. Very unusual, he said, fraudsters offer to return the stolen funds.
"We don't see this every day," he told Forbes , noting that if law enforcement agencies (other than CipherBlade) had identified Binance as the owner of the allegedly stolen funds, the outcome in this case would likely be the same.
In other words, CipherBlade itself doesn't seem to be doing much to recover the funds: the thieves, oddly enough, are just doing the right thing. As a general rule, the Binance website states that it "does not process private investigator requests without law enforcement involvement or a valid legal request."
Sometimes these collection companies ask law enforcement to turn over KYC information: names, addresses, phone numbers and other personal details of accounts involved in the program. These details are unlikely to pinpoint the ultimate mastermind, as fraudsters use multiple accounts to steal, launder and collect stolen funds.
However, handing over such sensitive information is not something law enforcement agencies or cryptocurrency exchanges usually do. Legal experts say it is highly unusual for law enforcement agencies to provide investigative information to victims of crimes, let alone private companies.
"Usually, data is not shared with private parties during ongoing police investigations because it can reveal all kinds of investigative strategies," said Mary Fan, a law professor at the University of Washington. "The government doesn't want to take responsibility for what a loose cannon can do."
Back in California, in M's case, he received a 21-page report detailing how law enforcement was able to file subpoenas against Binance or other companies used to promote the scheme to find possible perpetrators.
M told Forbes he was not aware of the status of the investigation into his leaks or whether he had any chance of getting his money back. Because federal agents can't trust the analytics of companies like CipherBlade, M doesn't know exactly how much he's paying.
"[CipherBlade] took advantage of someone who was already in trouble," he said.