Earlier this month I received a call from a long time business associate, who had recently invested over $700,000 in crypto currency. He is a well-regarded businessman in California who had built a sizeable construction business. “I think I may have been defrauded,” he said.
Our businessman had met a woman online, who had offered to partner with him on investments. The initial investments had yielded positive results, the woman appeared to be a skilled investor. The businessman was led to greater and greater investments. His crypto wallet showed his $700,000 investments increasing in value to over two million dollars. Then he tried to withdraw funds, and was unable to do so. What was going on? What could he do?
Investment in crypto currencies is no longer a niche market: a Pew Research Center study in 2023 estimated 17% of American adults had invested in crypto. Moreover, in early 2025 crypto investment is poised to grow significantly. Several forces are coming together for such increase: a new regulatory framework clarifying roles for banks and other market participants, new leadership at the Securities and Exchange Commission and federal regulatory agencies, President Trump’s embrace of crypto currencies, strong Congressional support, and proposal to create a Bitcoin strategic reserve fund.
For timely perspective on the due diligence needed by our businessman and other investors in 2025, I turned to Mauro Wolfe and Vince Nolan, counsel at Duane Morris LLP. Mr. Wolfe is a former senior enforcement attorney at the SEC, former federal prosecutor at DOJ in New Jersey, and a lead partner of the Duane Morris Digital Assets and Blockchain Group. Mr. Nolan’s litigation practice focuses on the finance industry, and the litigation and defense of blockchain and crypto enforcement matters.
Crypto Romance Scams and Other Deceptions
The romance scam involving our businessman is one of the most common ones in crypto. Nolan, whose clients have been caught up in such scams, explains how these scams often develop.
“At its most basic, the crypto romance scam is when someone sets up a fake identity, gets into an online romance with a victim and then uses that emotional connection to manipulate the victim into giving the scammer money under false pretenses. The initial contact can occur in different ways, sometimes through fake profiles on dating sites and apps or an unexpected contact directly on other social media or text. These contacts are a sort of probing, with the scammers looking for someone vulnerable.
“Once contact is made, the scammers then work to build a romantic relationship, often inappropriately quickly. The scammers are expert manipulators. They know how and when to romance and how and when to guilt trip when they want the victim to send money. In one of our recent cases, the scammer pretended they recently had success investing in cryptocurrency, and because the victim was special to them, they shared the investing strategy with them. The client ‘invested’ in the scam and has likely lost several hundred thousand dollars.”
The romance scam is not unique to crypto: it exists throughout the financial sectors. But the crypto sector is a promising venue, due to its limited regulation. Nolan adds,
“Anything that goes through a bank and to some extent wire transfers in dollar-denominated transactions has a certain amount of Know Your Customer and Anti-Money Laundering compliance. Such compliance requirements are largely absent from crypto.
“Additionally, because crypto wallets are anonymous, it is difficult to track who owns or controls the crypto. Once the investment hits the scammer’s wallet, they transfer it around and send it through a mixer like Tornado Cash and it can become impossible to ever trace it. There is a whole world of crypto mixers out there working to preserve anonymity and disrupt efforts to trace the crypto.”
Due Diligence Necessary by Investors
Our businessman, successful as he is in other areas of business, failed to do the due diligence needed prior to investment. He failed to adequately confirm the identity of the party outreaching to him, to require an-person connection. He was misled by the seeming association of the investment platform with a legitimate crypto exchange, Crypto.com.
Wolfe notes that other main crypto investment scams have elements similar to the romance scams. They too usually involve fake identities, claims of very generous returns, false ties to legitimate crypto sites. Wolfe recommends several form of due diligence before any investment.
“Crypto investors should be aware of red flags when investing in crypto projects. A red flag is where you are contacted by a complete stranger, often attractive, who seeks to commence an online relationship and eventually brings up investments in digital assets.
“Due diligence starts with determining that the person who is approaching you is a real person versus an online account. Look for an online profile on LinkedIn, online photograph, work accomplishments or speeches or written articles. The kind of online activity that proves someone is real. Be on alert for anything unusual, like recent online accounts with very few connections.”
“Often bad actors will attempt to associate their fraud with an otherwise legitimate organization like a large US legitimate crypto exchange. For example, the investment platform utilized by our businessman suggested an association with the major crypto exchange, Crypto.com. In fact, the association was fake: the platform had no connection to Crypto.com.
Nolan’s recommendations start with never sending money to someone you have not met in person. If an in-person meeting is not possible, schedule a zoom call, but also be on alert for deceptions, and require other forms of identity confirmation, starting with forms available online. Nolan also notes the general rule of investment that is often forgotten with crypto: if it sounds too good to be true, it probably is. “Crypto scams prey on the fact that people who got in early on Bitcoin and other crypto currencies made fortunes and that legitimized something of a get rich quick attitude in the crypto space.”
Additionally, as part of due diligence, Wolfe and Nolan recommend the state government websites as well as the FBI website that identify previous fraud complaints. Researching these enable an investor to become familiar with the rapidly evolving forms that fraud is taking.
Remedies Available to Investors
For our businessman, Wolfe and Nolan emphasized he needed to act quickly. “Moving swiftly is important because the bad actors will often move digital assets outside the US as quickly as possible in order to make seizures of the stolen or defrauded assets more difficult,” Wolfe explains.
Potential remedies exist that can be taken through law enforcement agencies as well as through private legal actions. Wolfe flags three options:
· Law enforcement agencies: Collect all the records you have and report the matter to the state Attorney General or federal law enforcement. Many states now have cybercrime units. There is no cost to the investor to report. Investors have been able to achieve financial recoveries through government actions.
· Private legal action against the scammer: Find an attorney and determine if private legal action against the bad actor is viable and financially worthwhile. Experienced crypto asset tracing law firms often have relationships worldwide with foreign law firms and forensics experts in the digital asset space to trace the defrauded assets.
· Private legal action against a third party: Private legal action may also be possible against individuals or entities that were not the bad actors themselves, but rather helped the bad actors complete the transactions. Cases against third parties can be challenging, though, and usually require significant legal and investigative resources.
Our businessman has made initial inquiries to locate his investment, but so far has not been able to do so. He has filed a complaint with the California Attorney General’s cybercrime unit as well as with the FBI. He is considering private action, though the costs are daunting, given his current financial situation.
Government Regulation, Crypto Investment and Individual Responsibility
Earlier this month, Wolfe spoke on a panel at the American Bar Association Banking Law Committee Annual Meeting, on “Digital Assets and Developments in Stablecoin Regulation”. Wolfe discussed new roles for the banking industry in crypto investment, and the potential withdrawal of SEC Staff Accounting Bulletin 121 on bank regulation. He also discussed clearer regulatory guidance to achieve a safer environment for investors.
While Wolfe believes that the new Administration will bring such guidance, he and Nolan emphasize government can only do so much. Government can never take the place of due diligence by individual investors—aided by the diligence of their family members, friends, and colleagues. Wolfe himself is an investor in crypto, as well as being an expert in the laws governing digital assets. He knows the perils out there.
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