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Introduction to the recovery of stolen funds
“I have been scammed; what are my chances and ways of recovering funds?” is among the most common questions crypto scam victims ask.
We wanted to provide an answer below, even if every situation involves specificities. If you want personalized support on your case, we encourage you to file a report here and opt-in to receive support.
Simply put, there are two ways a victim of a scam can recover their funds:
- Through law enforcement, or
- Through civil litigation
1- Recovering funds with Law Enforcement
We encourage every scam victim to file a report with the relevant law enforcement agency.
- Only law enforcement has the power to emit a freezing order, ie., to request that stolen funds be frozen if they manage to identify where the funds are currently located.
- Reporting a scam to law enforcement, whether the loss is or is not substantial, can help surface multiple victims of the same scam. If law enforcement finds out multiple victims are part of the same significant scam, they may decide to investigate and contact you.
- Platforms may require a report from law enforcement. For example, OpenSea requires users to file a report before they can support them if they got their NFT stolen.In our dedicated article here, we provide more advice on who to contact based on your jurisdiction and what to include in your report.
Law enforcement agencies receive way more cases than they can handle and can only investigate a minority of cases. Providing sufficient evidence does help them, and other criteria may determine whether law enforcement would be able to investigate your case:
- Obfuscation techniques used by the scammer(s) and ability to trace the funds
- The jurisdiction where the stolen funds are currently located and differences in how various foreign law enforcement agencies classify digital assets and Virtual Asset Service Providers
- Amount lost
- The nature of the platform where the stolen funds are currently located. For example, if the funds have moved to a regulated exchange, it may be more straightforward for law enforcement to reveal the holder of the receiving address.
- Ability to identify whether the case is linked to other cases reported by other victims
- Availability of expert skills at a given law enforcement agency at a given time.
2- The reality of civil litigations
Civil litigation can allow claimants to take the same steps as law enforcement across multiple jurisdictions.
However, civil litigation costs can reach tens of thousands of dollars, and often between $500,000 to $2 million dollars, including all legal and investigative costs, if the case turns out to be complex. In the meantime, funds recovery is never guaranteed as success depends on multiple factors:
- The jurisdiction where the stolen funds are currently located, and
- The ability to locate stolen funds and whether the identity of the scammer can be revealed, as well as whether law enforcement can reveal the holder of the stolen funds and emit a freezing order on time.
Therefore, civil litigation is only an option in two cases:
- The amount lost is significant and justifies funding a civil litigation, and
- A group of victims can be identified, making a group action financially viable for the victims or a third-party litigator to fund on their behalf.
What is a group action?
- A group action (or class action in the United States) is a claim made by different claimants (victims) for a collective case. In crypto, claimants constitute a group when they have been victims of the same scam or linked scams (e.g., a scam perpetuated by the same scammer or group of scammers).
How are these claimants identified?
- One or several victims report their scam and leave contact information (e.g., email) or are directly identified by the platform where the scam occurred or another means.
- Specialized firms then analyze the blockchain to detect addresses and clusters associated with the reported scam and analyze other scams in databases such as the Chainabuse database.
- If they identify a financially viable group action based on the total loss and other factors, firms reach out to victims to make them aware.
- Established firms are typically in contact with third-party litigation funders, investigators, and law firms to fund, launch, and execute the group action.
Who funds group actions?
Group actions can be funded in two ways:
- Victims collectively invest in funding investigative and legal costs, or
- Third-party litigation funders pay all upfront costs (investigative and legal costs). If the claim is successful and funds are recovered, they will take 30-50% of recovered funds (less if the case is less complex) to pay themselves back.
What are the different phases of civil litigations?
Civil litigations involving crypto scams typically involve different phases:
- Phase 1 typically involves the identification of the recipients of the stolen funds (typically exchanges or services), the sequence of transactions involved in the movement of those funds, and the analysis of potential funding options for the next steps. In best cases, this is done using an automated toolset to analyze the blockchain.
- Phase 2 would include assistance with recovery efforts, for example:
- Communication with exchanges or services seeking to recover the stolen funds
- Preparing a detailed trace report to support obtaining injunctive relief (e.g., search and seizure orders) from Law Enforcement against those controlling accounts that received stolen funds.
- If Phase 2 was unsuccessful, Phase 3 would focus on petitioning the courts for disclosure or freezing orders. This may include, for example, checking whether any platform or exchange has violated any laws and whether they have any liability to the claimant's benefit.
If you wish to receive support on your case, including investigative support options, please report your case on Chainabuse "Report a Scam" and opt-in to receive immediate support. This will include optional investigative support, including options for civil litigations.