The Crypto Exchange Faces Up and Pays Up

Case Study: The Crypto Exchange Faces Up and Pays Up

This case involved the following MyChargeBack services: CryptoTrace™ report and legal demand letters.

The Basis for the Dispute

R.L. in Ottawa, the Canadian capital, is a businessman with a full schedule. He has precious little time for surfing online, but one day did spot an ad on Facebook mentioning Elon Musk and cryptocurrency. As to be expected, the very name of the richest man in the world attracted R.L.’s attention. And crypto was then at the pique of its game. It paid to learn more, so it seemed. So R.L. quickly filled out a contact form and then logged out.

He almost forgot about it by the time he was finally contacted by someone who introduced himself as a “specialist” at the company that placed the ad, which purported to be an online brokerage. This “specialist” told R.L. that he could double his investment in no time by opening an account and trading a wide variety of assets, from forex to cryptocurrency. R.L. was naturally skeptical, but on a whim decided to try it with an initial deposit of $500. The “specialist” told him that he would have to transfer the funds in bitcoin, which he could purchase using a Canadian application that he already installed on his smartphone.   

The payment was not the only thing that was easy. So was the trading. That was because the “adviser” would call back on a regular basis to tell R.L. what to invest in. After the first week R.L. was happily surprised to see his initial modest investment grow by over 40%. As a result, any hesitation that he had that this firm he was dealing with was a scam suddenly dissipated. He was now all in. “It was small potatoes,” R.L. said of the initial earnings he thought he had won, “but it meant something.” So when his “adviser” next called and suggested that he invest $10,000 more, R.L. readily agreed. 

The “adviser” kept calling back weekly, right on time as was agreed, to let R.L. know what trades he was making and discuss what came next. Some turned out to be good, some not so good and others were actually quite bad. But R.L., being the successful businessman that he is, knew that he had to do his due diligence too, so he carefully checked every win and loss that the adviser reported and found the same numbers on mainstream financial news sites. It indeed looked like the “adviser” and his firm were legitimate. 

But they weren’t. It turned out that they were also checking mainstream financial news sites to make sure that the results they were reporting to R.L. (and, presumably, all their other victims) reflected what was really happening in the market.

A few months later, however, R.L. decided to withdraw some of his supposed profits to finance a well-deserved vacation. By then, the firm’s website showed that his account balance had grown to $103,000. But he was told that any withdrawal would be capped at $50,000 and, in order to secure that amount he had to invest $10,000 more. On the face of it that made no sense to him, and he indeed objected because there was no such requirement mentioned on the firm’s website. In the end, however, he paid because there did not seem to be any other way he could access any of his funds at all. Nonetheless, no withdrawal was forthcoming. It was then, of course, that he realized that it was just one big scam. 

Not knowing what to do next, R.L. went online and found MyChargeBack

Strategies and Tactics

At first, R.L. told us that he wanted to go after the fake brokerage itself in order to get his funds back, not the company that ran the smartphone app or the banks that handled the money. While MyChargeBack confirmed that the brokerage was unlicensed and unregulated and was operating in violation of the law, we felt that the best strategy for yielding the quickest results would be to focus on the cryptocurrency exchange that hosted the wallet that received his bitcoin. That being the case, our first order of priority was to trace the bitcoin that R.L. purchased using the app across the blockchain to the wallet from which it was cashed out.

The MyChargeBack cryptocurrency team, therefore, immediately opened a forensic investigation to map the path of the bitcoin that R.L. purchased. For the next few months his bitcoin meandered through the blockchain and was subjected to a number of attempts to disguise it using “tumblers” in order to obfuscate its origin, hide its destination and confuse investigators like us. But the state-of-the-art cointracking employed by MyChargeBack knew how to follow it anyway, and found that it had been laundered along the way. We were able to successfully identify the cash-out wallet in our CryptoTrace report, as well as the cryptocurrency exchange that hosted it.

The next step was obtaining the Know Your Customer (KYC) data from the exchange, which would include the name and contact information of the wallet holder. Therefore, attorneys working on behalf of MyChargeBack dispatched a legal letter to the exchange, notifying it that one of its account holders violated the law by offering fictitious investment opportunities and was possibly involved in organized crime. The exchange immediately acknowledged its error and volunteered to provide a substantial refund of its own to our client, obviating the need for R.L. to file a criminal complaint with the police to pursue the wallet owner. 

The MyChargeBack Difference

The most critical difference that MyChargeBack brought to the table in processing this case was, as noted above, the sophistication of its cointracking technology and the dependability of its forensic blockchain analysis. Without it, there would have been no chance to pinpoint the cashout wallet, since lesser solutions are incapable of overcoming the obstacles that scammers rely upon to escape detection. As a result, therefore, MyChargeBack was easily able to prove to the cryptocurrency exchange in the CryptoTrace report we prepared for R.L. that his bitcoin was deposited in the suspicious wallet it hosted. Finally, the attorneys retained by MyChargeBack, who specialize in cryptocurrency cases, once again demonstrated how their experience in dealing with cryptocurrency exchanges can quickly lead to an equitable settlement. 

MyChargeBack in Canada

    • The client was cajoled into transferring a significant sum to an unlicensed brokerage that claimed to be an investment firm
    • When the client attempted to make a withdrawal or recover the bitcoin that was purchased with some of his funds he found that he was unable to do so due to stumbling blocks that were purposely placed in his way
    • MyChargeBack prioritized recovering the bitcoin via the crypto exchange and was able to identify the cashout wallet even though the scammers attempted to launder it along the way
    • The crypto exchange that hosted the wallet voluntarily refunded the client the value of the bitcoin after receiving legal demand letters from attorneys retained by MyChargeBack

Payment made by the crypto exchange

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