Richard Howlett, partner, Selachii LLP
Richard Howlett, partner, Selachii LLP

The principle of digital currency was only ever going to profit as our trust of technology grew in line with our mistrust of the traditional financial institutes. This potential has recently been illustrated perfectly by bitcoin which has just hit its highest ever price. 

The only problem is as the price soars and the public takes more notice of the investment opportunities offered by crypto-currency trading, the number of scams involving bitcoin and other digital currency and digital trading has also grown. Rarely a day goes by when one of these scams doesn't feature in the morning headlines. 

Bitcoin scams are probably the most mature of the crypto-currency frauds. We've helped clients resolve all manner of scams including malware designed to access the victim's PC, phishing scams set up to gain access to the bank accounts linked to the victim's bitcoin key, “bitcoin-flipping” and bitcoin pyramid schemes which work like the pyramid selling scams so prevalent in the 70s: the victim is promised high returns for an initial investment and introductions to their friends and family. Once all the entry fees have been collected, the scheme folds. 

The good news is the media's enthusiasm to cover these schemes is providing much needed warnings for the public. Only a few weeks ago, we saw multiple reports on the Ecoin Plus scheme. This was a somewhat standard bitcoin exchange scam. Ecoin Plus offered investors high levels of return if they were to make bitcoin “investments”. However, having reached what they obviously saw as critical mass, the website suddenly disappeared along with all of the monies invested, leaving investors red-faced and empty-handed. 

Somewhat predictably the only trail they have left behind is one of confusion based on various trading names and a series of dead-ends blocked by partners unable or unwilling to shed light on the company's true identity. 

What people need to bear in mind is that these scams are becoming more sophisticated than just modern Ponzi schemes. Bitcoin “mining” is one of the fastest growing trends. Mining (the validation of transactions in the blockchain using complicated mathematical equations in exchange for new Bitcoins) is totally legitimate. Fraudsters however have launched a series of fake mining services whereby the mining fees are collected but no actual mining takes place and then, again once the desired total fees have been collected, the “miners” disappear. 

But again the media has been quick to highlight mining scams. At the beginning of June Homero Joshua Garza, CEO of GAW Miners and Zenmining cloud-mining scams, was fined $12 million after the US Securities and Exchanges Commission allegations that Garza's mining service was simply a scam that had netted him nearly $20 million. 

Another growing trend is the Initial Coin Offering (ICO). This is a new way to crowdfund, only instead of providing a shareholding in return for capital, the company promises to provide its own crypto-tokens in return for either bitcoin or one of the major international currencies. The only problem is fraudsters have already latched on to the potential of the ICO. 

We were recently heavily involved in the High Court in London's decision to order Moopay Ltd and its ex-CEO Alex Green to pay over 750 in bitcoin to the team that developed their syscoin crypto-currency. 

Moopay - better known as Moolah - had been holding the money for the developers but there was no sign any money was going to be forthcoming.  The final injunction issued by the High Court won't result in a full and immediate payment but it does give the developers access to the remainder of funds raised during Moopay's ICO. 

So with all of these threats out there how do you stay safe?; Well we'd suggest you follow these three very simple steps if you are considering any digital/online investment opportunity:

  1. Does it look to good to be true (i.e. improbably high/fast returns)?  If it does, it probably is so immediately be on your guard. 
  2. Never trust an unsolicited approach via email or social media and never provide any personal details or give any money online until you know exactly who you are giving  those details to and have total reassurance the person or organisation is real and trustworthy. 
  3. Do your due diligence.  Make sure you know exactly who you are dealing with before entering into any agreements or making any payments. A legitimate business will have all of these details to hand and will be willing to share them. They will also have a “digital footprint” you can trace to make doubly sure they are what/who they say they are. 

And if you are defrauded in any way – or think you may be about to be defrauded – seek professional advice from a professional who not only specialises in digital fraud but can also demonstrate an ability to manage multi-jurisdictional disputes as these criminals are almost always based in countries with more lax legal and regulatory environments.  

A professional will know how to structure and commence a challenge, and this will increase your chances of concluding your dispute successfully.

Contributed by Richard Howlett, partner, Selachii LLP

*Note: The views expressed in this blog are those of the author and do not necessarily reflect the views of SC Media or Haymarket Media.