In recent years, the meteoric rise in the value of cryptocurrencies has been a double-edged sword for many investors. While the market offers significant profit potential, it has also become a fertile ground for fraud. The victims of such fraud are often left with little recourse due to a regulatory framework that heavily favors the government over individual victims.
The crux of the issue lies in an obscure Department of Justice regulation, which prioritizes the government’s right to confiscated funds over victims’ rights to restitution. This regulation can severely undermine the Congressional intent of the Mandatory Victims Restitution Act (MVRA), which was passed in 1996 to ensure that victims of federal crimes are made whole.
Fraud in the cryptocurrency space is rampant, with methods like phishing, social engineering, and SIM swapping being commonly employed by scammers. According to a 2023 report by the Federal Bureau of Investigation, over 69,000 complaints related to cryptocurrency fraud were recorded that year alone, accounting for more than $5.6 billion in losses.
While efforts to investigate and prosecute crypto fraud are ongoing, successful recovery of assets is exceedingly rare. However, in cases where assets are recovered, the government often retains the majority due to regulation 28 CFR 9.8(c). This is particularly troubling given the volatile nature of cryptocurrencies, whose values can fluctuate dramatically over short periods of time.
Under current regulation, compensation to victims is calculated based on the value of the stolen property at the time of the loss, not accounting for any increase in value thereafter. This limitation stands even when the government has seized more than enough to fully compensate all victims from a fraudulent scheme. Consequently, this often results in what seems like a windfall for the government at the expense of those who have truly suffered losses.
The regulation is in contradiction to the MVRA’s intentions, which underscore “making victims whole.” It also highlights a critical policy question: whether it is fair for victims, rather than the government, to benefit from poorly regulated assets seized from fraudsters. Many argue it is imperative that the DOJ give priority to compensating victims fully from forfeited assets.
For further reading on how the DOJ’s conflicting regulations affect crypto fraud victims, you can access Elisha Kobre’s insights in a recent article published by Bloomberg Law.