FBI San Diego seizes digital asset recovery websites

Special agents with the United States Federal Bureau of Investigation (FBI) San Diego Field Office have seized websites belonging to three digital asset recovery services in the agency’s ongoing crackdown on scams aimed at further defrauding victims.

The seized web domains were from MyChargeBack, Payback LTD, and Claim Justice, all digital asset’ recovery’ companies that claim to provide digital asset tracing and the ability to recover lost funds.

“Representatives of these companies often advertise strong success in recovering victim funds but have no track record in doing so,” said the FBI.

It added that “they often charge significant upfront fees and ask for a commission should funds be recovered. These companies use extensive social media advertising, including false reviews, to convince victims of the legitimacy of their services.”

Digital asset recovery scams are not new but are increasingly prevalent, with numerous companies claiming to be able to help clients recover lost or stolen funds.

Despite an overall decline in illicit digital asset activity in 2024, compared to last year, the number of stolen funds and ransomware attacks is rising. According to Blockchain analytics firm Chainalysis, stolen funds inflows nearly doubled from $857 million in 2023 to $1.58 billion this year, while ransomware inflows rose by approximately 2%, from $449.1 million to $459.8 million.

This increase in stolen digital assets has naturally fueled demand for services that claim to be able to recover said assets.

Recovery services

Despite the proliferation of scam services, digital asset recovery is not a lost cause or myth. Many multinational law firms offer legitimate services ranging from basic advice to recovery, aided by tracing investigators and litigation.

As noted by Charlotte Hill, partner at international law firm Penningtons Manches Cooper, speaking with CoinGeek: “The point is that we can recover it, and there have been successful recoveries.”

Penningtons is a board member of the Crypto Fraud and Asset Recovery Network (CFAAR), which was launched in August 2021 and brought together lawyers, barristers, forensic accountants, corporate intelligence, and asset recovery professionals to develop “best practices” in digital asset recovery.

Hill went on to say that, in terms of seeking to recover assets, “if it’s in, for example, a centralized wallet, it is more often than not possible, as long as that exchange or whoever is holding the wallet is willing to play ball with you.”

However, much depends on the type of loss/hack in question, and in cases where the stolen assets have been put through a mixing service—platforms that can obfuscate the origin of digital assets funds by mixing coins with others and sending them to different wallet addresses to make transactions anonymous and difficult to trace—recovery becomes naturally more difficult.

This is part of why such mixing services often find themselves on the sanctions list, particularly in the U.S.—Tornado Cash, Sinbad.io, and ChipMixer are prominent examples.

It also may not be in everyone’s budget to hire a well-respected law firm to help them recover lost assets, especially if the chances of success are uncertain. This is where scam recovery services have sprung up to take advantage of the desperate and/or hopeful victims of prior scams and hacks.

This worrying trend has led to increased vigilance from authorities.

Crackdown

Recent highlights in the ongoing efforts to squeeze this nefarious sub-set of crypto-scammer include, in June 2023, the Manhattan District Attorney’s Office seizing the domain of digital asset recovery service Coin Dispute Network (CDN). The company’s purported vice president and chief recovery officer, Michael Lauchlan, was subsequently arrested and charged with fraud in August of this year.

Lauchlan populated CDN’s website with falsified news articles and fictional testimonials to gain potential clients’ trust, charged clients an initial consultation fee, then, after falsely claiming to know where clients’ assets had been moved, he promised to successfully recover them in exchange for an additional fee—all false promises and lies, according to Homeland Security Investigations (HSI) New York, who investigated CDN.

In response to such cases, the Commodity Futures Trading Commission (CTFC)—one of the U.S.’s top financial sector watchdogs—posted a warning on its website titled “Don’t be Re-Victimized by Recovery Frauds.”

The CFTC notice explained that “recovery scams are a form of advance-fee fraud—when you are asked to pay upfront for the chance of getting a much bigger sum of money later. Recovery frauds target victims already harmed by other frauds.”

It added, “If you’ve been a recent victim of fraud, be prepared to guard against these follow-on schemes.”

Then, in June, the FBI added its voice to the concern choir with its public service announcement cautioning against “fictitious law firms targeting cryptocurrency scam victims offering to recover funds.”

FBI advice

To mitigate the risks it warned of, in its most recent press release, the FBI offered some advice to digital asset investors, victims, and potential victims of asset loss or theft.

Firstly, the agency noted several potential ways to identify this type of asset recovery scam. Namely:

• Recovery scheme fraudsters charge an up-front fee and either cease communication with the victim after receiving an initial deposit or produce an incomplete or inaccurate tracing report;
• Fraudsters may claim affiliation with law enforcement or legal services to appear legitimate;
• And scammers may reference actual financial institutions and money exchanges to build credibility and further their schemes.

Other tips to avoid becoming a victim included being wary of advertisements for digital asset recovery services and researching the advertised company, being aware of vague language and minimal online presence, and victims not releasing any financial or personal identifying information to anyone contacting them claiming to be from such a service.

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