Posted on

FBI Has 130 Ongoing Crypto Cases, a ‘Small Sliver’ of All Investigations, Agent Says

FBI agent Kyle Armstrong said the Bureau has 130 ongoing crypto-related cases, with dark web drug sales a particular concern, Bloomberg reported Wednesday, June 27.

Speaking at the Crypto Evolved conference in New York on Wednesday, the supervisory special agent said the number represented “a small sliver,” of the FBI’s activities, which number “thousands of cases.” The agency has nonetheless noticed an increase in illegal activity facilitated by cryptocurrency payments, he said.

The 130 “threat tagged” files related to crypto span a gamut of crimes, including human trafficking, kidnapping, ransomware attacks and illicit drug sales.

This latter has become a focus for the Bureau, according to Armstrong, highlighting the opioid epidemic in the U.S. He considered the dark web to be a factor in enabling drug abuse, saying that 10 percent of global drug users make their purchases on illegal online marketplaces.

Armstrong’s figure of 10 percent is notably not higher than statistics released by an older Global Drug Survey from 2017, which found the global median for the percentage of drug users who use the darknet to be 10.1 percent. 90 percent then, continue to purchase illicit substances via more ‘traditional’ methods.

Armstrong, who manages the three-year-old Virtual Currency Initiative for the FBI as it relates to money laundering activities, said that while the underlying blockchain technology makes it easier for investigators to trace cryptocurrencies than cash, the relative anonymity of transactions can prove an obstacle.

In February, a two-year study of the dark web ecosystem claimed that Bitcoin may in fact be losing its cachet as the most popular currency on dark web markets, seemingly due to consumers’ annoyance at network traffic and high transaction fees.

Posted on

FBI Agent Confirms 130 Crypto-Related Investigations

The U.S. Federal Bureau of Investigation (FBI) is currently running 130 different cryptocurrency-related investigations, Bloomberg reported Wednesday.

FBI Supervisor Special Agent Kyle Armstrong told the Crypto Evolved conference in New York that the agency is investigating a variety of crimes, including human trafficking, drug transactions, kidnapping and ransomware, which have a cryptocurrency component, according to Bloomberg.

Further, there has recently been an uptick in cases involving cryptocurrencies, he said, citing opioids as one area where the bureau needs to focus on. Roughly 10 percent of drug users worldwide purchase drugs online in illegal digital marketplaces.

Some parts of the U.S. have also seen an increase in extortion schemes, where the perpetrators wish to use cryptocurrencies.

That being said, these “threat-tagged” investigations only make up a “small sliver” of the thousands of  cases the agency has, he said.

And unlike crimes involving cash, Armstrong said the blockchain’s immutability makes it easier to track transactions. On the flip side, cryptocurrencies’ anonymity or pseudonymity make it more difficult to properly investigate a crime.

FBI logo image via Kristi Blokhin / Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Prosecutors: Options Seller Duped Investors With 'Worthless' Crypto

Federal prosecutors say a New York resident misled investors about a cryptocurrency as part of a wider investment fraud scheme.

The U.S. Attorney’s Office for the Eastern District of New York said Monday that Blake Kantor, also known as Bill Gordon, was being charged with conspiracy to commit wire fraud, making false statements and obstruction of an official proceeding in connection with a binary options investment platform he founded called Blue Bit Banc. The company, officials said, allegedly manipulated its investor data “so that the probability of investors earning a profit favored BBB and disadvantaged investors,” according to statements.

According to the Attorney’s Office, Kantor pitched investors on an “ATMCoin” and converted investor funds into the cryptocurrency.

“To further the scheme, Kantor directed the opening of bank accounts – including one in the island nation of St. Kitts and Nevis -using aliases and the identifying information of other people,” Monday’s statement reads. “Kantor further converted monies that investors invested into ATM Coin, a worthless cryptocurrency that Kantor misleadingly told investors was worth substantial sums of money.”

Through the scheme, Kantor allegedly raised $2.1 million from more than 700 investors over a three-year period. And during the government’s investigation, Kantor allegedly claimed that he had no involvement with binary options, and he was also accused of “[directing] a co-conspirator to alter lists of BBB customers after FBI agents informed Kantor that they were investigating his involvement in binary options.”

“The allegations outlined in this indictment detail acts of deceit and offshore money movement in the evolving world of cryptocurrency, which impacts the trust investors have with our financial system,” he added.

Kantor was arrested and arraigned on Monday.

Justice image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

US DOJ Accuses Listings Site Backpage Of Laundering Millions In Crypto

Listings website was seized on Friday by the US Department of Justice (DOJ) in part on charges that it laundered half a billion dollars in illegal revenue, some via cryptocurrencies, a DOJ press release announced Monday, April 9.

The 93-count federal indictment, obtained through joint action by the FBI, IRS and others, alleges that Backpage earned “over $500 mln in prostitution-related revenue since its inception.” IRS Criminal Investigation Chief John D. Fort dubbed the defendants “masterminds,” who committed “egregious financial crimes such as money laundering […] at the expense of women and children,” using “virtual currencies… and the anonymity of the Internet” to cover their tracks.

“By laundering the illegal gains of an enterprise, Backpage perpetuated the exploitation of victims and continued to finance their business,” Chief Postal Inspector Guy Cottrell said.

The indictment explicitly states that the defendants “converted customer payments into and out of cryptocurrency” in order to conceal their misconduct and evade law enforcement. But beyond the indictment, the crypto trail goes further, involving not only the defendants, but the sex workers who used the online hub as well.

In 2015, Visa and Mastercard stopped processing transactions from Backpage, citing “moral, social and legal” reasons. Bitcoin became one of the few available payment methods, with one Backpage escort bitterly riposting that although altcoins “may seem scary,” they were becoming the only way to “stay safe and successful” in the online industry. A reddit thread that same year proposed a Sex Industry Bitcoin Training Manual in the wake of Backpage’s Visa shutdown. This “wave” of new crypto users was dubbed by Bitcoin advocacy reddit groups as “The Backpage Effect.”

Law authorities globally are working to set a precedent for cases in which cryptocurrencies are exploited to conceal layers of misconduct and corruption. According to the head of Europol, as much as $5.5 billion is being laundered through cryptocurrencies annually.

Posted on

FBI Publishes PSA About Tech Support Fraud Targeting Cryptocurrency Holders

The FBI’s Internet Crime Complaint Center (IC3) has published a public service announcement on March 28 warning about the prevalence of scammers posing as tech support for a variety of industries, including the cryptocurrency sector.

The announcement defines tech support fraud as a “criminal claiming to provide customer, security, or technical support in an effort to defraud unwitting individuals,” and references the increasing frequency of this type of fraud leading to criminals“pos[ing] as government agents, even offering to recover supposed losses related to tech support fraud schemes or to request financial assistance with ‘apprehending’ criminals.”

Tech support fraud, which can occur through the telephone, search engines, pop-ups, locked screens, and phishing emails, is now also being perpetrated through the new targets of virtual currency exchanges, according to the FBI’s PSA.

The section on the new variations and trends of this type of fraud notes that virtual currency fraud has led to “individual victim losses often in the thousands of dollars.” The scam is carried out by a criminal who pretends to be a virtual currency service’s support representative in order to gain access to a crypto holder’s wallet, then transferring all of the crypto out while the fake “maintenance” is taking place, only to “cease all communication” and disappear with the funds.

The FBI suggests that the public update their ad-blocking and anti-virus software, examine customer support numbers found on search engines more carefully, and “resist[s] the pressure to act quickly” in online tech situations, as “criminals create a sense of urgency to produce fear and lure the victim into immediate action.”

Victims of any tech support fraud scams are asked to immediately report the incidents in as much detail as possible to the IC3.

In January of this year, the IC3 warned the public about a different new method of cryptocurrency extortion – false death threats to individuals that requested crypto and fiat ransoms to spare their lives.

Posted on

Scammers Are Posing As Crypto Exchange Support Staff, Says FBI

The Federal Bureau of Investigation (FBI) said Wednesday that consumers should watch out for would-be scammers posing as support staffers for cryptocurrency exchanges.

The agency’s Internet Crime Complaint Center (IC3) sounded the alarm about tech support scams in a recent notice, stating that it constitutes “a problematic and widespread scam.” In 2017, the center said, consumers submitted roughly 11,000 complaints and claimed losses in excess of $11 million connected to tech support fraud.

According to the FBI warning, cryptocurrency investors are becoming an increasingly more common target for fraudsters, “with individual victim losses often in the thousands of dollars.”

The scam plays out like this: fake support numbers are posted online, which are then found by victims who are looking for information. During the course of conversation, the scammer directs the victim to send their cryptocurrency to a “temporary” wallet while the issues are addressed. But in these instances, the funds are never returned.

“The fraudulent support asks for access to the victim’s virtual currency wallet and transfers the victim’s virtual currency to another wallet for temporary holding during maintenance,” IC3 explained. “The virtual currency is never returned to the victim, and the criminal ceases all communication.”

The warning highlights the lengths to which scammers seeking to defraud cryptocurrency users will go to find targets. But this isn’t a new phenomenon: a number of popular online platforms, from Google to Facebook to Twitter, have been used as a conduit to fraud, prompting the companies behind them to cut off advertising for services and token sales in particular.

Other frauds masquerading as real entities include a recent wave of fake websites pretending to sell tokens for message app Telegram’s ongoing token sale.

Mask image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Crypto Death Threat Scams More Frequent, FBI Warns Cases Are ‘Heavily Underreported’

The US Federal Bureau of Investigation (FBI) has warned Internet users about false death threats as a new method of cryptocurrency extortion, ABC California reported on Friday Jan. 26.

One of the victims, introducing themselves as Christiane, used FBI’s Internet Crime Complaint Center (IC3) to inform the agency that she received an email with a death threat. The email said: “I’ll be short. I’ve got an order to kill you,” and demanded Christiane to pay $2,800 in U.S. dollars or Bitcoin in order be spared by the would-be assassin.

Even though she realized that it was a scam, Christiane told ABC7 that she found the message distressing enough to make her look over her shoulder in fear of a potential threat on the way to work.

According to FBI agent Laura Eimiller, the case represents a new method of online extortion that is specifically increasing in frequency in California right now, ABC reports.

Eimiller also emphasizes the fact that the emails are structured and written in a way that is likely to make the target feel deeply affected, even if they are able to recognize them as a hoax.

Thus, FBI warns Internet users and encourages potential victims to provide information about any new cases, given that the number of reports is “about 15 percent of the scams that are actually taking place,” according to Eimiller. She added that the crimes like these are “heavily underreported.”

Posted on

Smart Contracts Are Taking Over Functions of Lawyers: Expert Blog

Expert Blog is Cointelegraph’s new series of articles by crypto industry leaders. It covers everything from Blockchain technology and cryptocurrencies to ICO regulation and investment analysis. If you want to become our guest author and get published on Cointelegraph, please send us an email at

After reading about how a partner in one of the biggest and most prestigious international law firms was busted by an undercover US Federal Bureau of Investigations (FBI) agent for trying to garner Bitcoins in a corrupt transaction from a Silicon Valley tech company, it’s likely you won’t feel sad about smart contracts beginning to take over certain functions of lawyers. You might even secretly thank Ethererum’s co-inventor Vitalik Buterin, for it.   

“My life is over”

A calm lobby of Hilton Garden Hill in Cupertino, CA was transformed into a crime scene exactly at 9:55:10 am on Jan. 31, 2017 when a man, shrieked “my life is over” as he was being handcuffed and arrested by FBI agent William Scanlon. The arrested man was using a fake name “Dan” and wearing an obvious wig to disguise his identity.  Unfortunately, his cover was blown when the Scanlon, who worked at FBI’s public corruption division, identified him in his report as no other than Jeffrey Wertkin, a partner at Akin Gump Strauss Hauer & Feld who was an ex-US Department of Justice (DOJ) prosecutor.

Apparently, Wertkin, while still working at the DOJ in Washington DC, stole whistleblower complaints brought against a Silicon Valley tech company, which was sealed from public view.   To give the tech company a leg up in the government’s ongoing investigation and to obstruct justice, Wertkin tried selling these sealed whistleblower complaints against the tech company, in exchange for 310 “untraceable” Bitcoins worth $310,000, but was instead busted by the FBI.

Wertkin’s dreams of becoming an “undetectable” Bitcoin millionaire was shattered on Nov. 29, 2017 — when Bitcoin was trading at $7,000 – and when he pleaded guilty to two charges of obstruction of justice and one count of transporting stolen goods across state lines. DOJ prosecutors said they would seek 30 to 37 months of prison time when he’s sentenced on March 14, 2018. The law firm has since fired Wertkin.

Blockchain to replace functions of lawyer

It should be noted that Bitcoins are ill-suited for corrupt transactions. Because, Bitcoin transactions are tracked and made public using Blockchain, which is a digital ledger distributed over a network of computers rather than located on a single or multiple servers. Transactions made in Bitcoins are recorded chronologically and publicly. It is almost impossible to alter the historical records on a Blockchain and more importantly, access to a Blockchain can also be restricted.   

Buterin explained, “All transactions under Blockchain come with auditable trails of cryptographic proofs.  Rather than simply hoping that the parties we interact with behave honorably, we are building Blockchains that inherently build the properties in the system, in such a way that they will keep functioning with the guarantees that we expect, even if many of the actors involved are corrupt.”

The Blockchain’s main disruptive element in today’s commercial and economic ecosystem is its ability to eliminate the necessity to trust intermediaries to certify a transaction. This feature lends Ethereum Blockchain well to being used to create smart contracts.

Smart contracts are computer protocols, or algorithms, which can verify the negotiation process or performance of contracts–to the extent, legal relationships can be reduced neatly into code-whereby clauses are automatically enforced once the pre-programmed conditions are satisfied. They are coded instructions, which execute on the occurrence of an event.

“‘Smart contracts’ – can automatically move digital assets, including ‘contracts’ according to arbitrary pre-specified rules, simply by writing up the logic in a few lines of code,” explained Buterin.

Lawyers realize that smart contract technology will be an unstoppable disruptive force for the profession.  

For example, Blockchain’s ledger with the inalterability of the data, mixed with smart contracts could help clients create an immutable, time-stamped and legally-defensible record of when a trademark or copyright is first used. Thus, should a client pursue registration of said mark, the evidence would be there to leverage the option in their favor. The Blockchain is the perfect mechanism for achieving these goals because by nature records in a Blockchain network are time-stamped, secured and scalable.

On Jan. 9, 2017 Kodak, a camera manufacturer, announced the launch of its KodakCoin cryptocurrency utilizing Blockchain security technology, a digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform aimed at enabling image rights management for photographers. Using the Blockchain for copyright registration and tracking makes sense, so the company’s stock price shot up 89 percent upon this announcement.

“With KodakCoin, participating photographers are invited to take part in a new economy for photography, receive payment for licensing their work immediately upon sale and for both professional and amateur photographers, sell their work confidently on a secure Blockchain platform,” Kodak said.

The camera company’s “photo-centric” cryptocurrency is being launched in an ICO to accredited investors who meet the financial threshold of– either $200,000 in income or $1 mln of net worth – from the US, UK, Canada and other select countries under a licensing partnership with Wenn Digital. It will also involve a Blockchain-backed image rights management platform called KodakOne.

On a separate note, Kodak on the same day also announced a new Bitcoin mining rig leasing business line called “KashMiner.” Users of KodakCoin and KashMiner are urged to take into consideration the US as well as cross-border tax implications when evaluating the overall economics of transactions utilizing Kodak’s new virtual currency based products.

Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.
Posted on

Encryption Becoming 'Public Safety Issue' – FBI

Encryption technology has reached a stage where even government agencies like the FBI don’t have the technology to unlock hidden data. In fact, it’s mathematically impossible to break many advanced forms of encryption, regardless of technology or available budget.

While the world’s most well-known investigation authority is tasked with providing the US government with crucial intelligence information, it is struggling to follow up on investigations due to advances in data encryption.

As reported by Reuters this week, the FBI was unable to crack over 7,800 devices that contained information the FBI considered vital to ongoing investigations from 2016-2017. The agency has been given legal authority, by the courts, to try and access the data on these devices, but they were simply unable to do so because of the high-level encryption used to protect the information.

FBI director Christopher Wray delivered these statistics in an address at the International Conference on Cyber Security.

While unpacking the challenges facing the bureau, Wray maintained that the FBI supports advances in encryption and information security. However, that has become a double-edged sword that is making the FBI’s life increasingly difficult:

“We face an enormous and increasing number of cases that rely heavily, if not exclusively, on electronic evidence.”

Making progress in this regard will take “significant innovation,” according to Wray, but the FBI head does not consider it impossible. To date, half of the devices safeguarded by encryption have been inaccessible, Wray said in his address.

Goes both ways

While the FBI’s sentiments relate directly to investigations where they have been given legal access to try and break through encryption to unlock information, both state and public individuals have vested interest in encryption technology.

Messaging apps that utilize encryption technology have become all the rage, allowing people to communicate without fear of being spied on- for whatever reason. Encrypted communication platforms have become vital in repressive nations like Iran, for instance.

Nevertheless, governments around the world have pushed for regulation that allows widespread surveillance of the public. The United Kingdom has done so in a number of instances.

No such thing as soft encryption

The FBI faces an uphill battle against encryption technology and there seems to be no middle ground in this regard. The essence of encryption is to safeguard information by granting access to authorized parties only.

Whether or not agencies like the FBI have been given legal authority to decode encrypted data, they are still deemed unauthorized by the encryption itself.

The irony here is that modern-day encryption technology stems from developments made primarily by military operations decades ago. The need to protect sensitive information being sent during war times can be attributed to the development of various encryption technologies, which are now widely available to the general public.

Once software developers got their hands on the basic code, like the so-called cypherpunks who laid the foundation for the cryptography that powers Bitcoin and other cryptocurrencies, massive strides were made.

In the quest to safeguard information, encryption developers weren’t about to create a backdoor for the FBI and other security agencies to make use of. That would defeat the point and create an entry point for nefarious entities to get their hands on important information.

The most likely course of action will be the development of better decryption methods. It’s highly unlikely that software engineers will be making less powerful encryption technology in years to come.

Posted on

Silk Road Agent Bridges Gets 2 Extra Years Jail Over Second Bitcoin Theft

Shaun Bridges, the secret service agent twice arrested for theft of Silk Road Bitcoins, has received a further two-year jail sentence for his second offense.

As Reuters, Ars Technica and others report Wednesday, Bridges who is already serving six-and-a-half years for theft, plead guilty to extended charges in August and received the verdict this week.

California judge Richard Seeborg commented on the events transpiring after Bridges’ first indictment:

“Particularly troubling is the fact that Mr. Bridges did engage in further efforts to conceal and need to steal after he had entered the plea agreement.”

Revelations about corruption within the Silk Road case first surfaced in 2015 after alleged leader Ross Ulbricht received life imprisonment for online drugs distribution.

“On or about July 28, 2015, while on release from the pending case… Bridges caused transfer of the approximately 1606.6488 seized Bitstamp funds in the online wallet that belonged to the US government into a separate online wallet at BTC-e controlled by Bridges,” the charges from August read.

BTC-e, now trading as WEX, had also seen its assets part frozen by the FBI as in ongoing investigations over money laundering.

In October meanwhile, US federal authorities finally gained access to the proceeds of the huge Silk Road sell-off, which now infamously came at the rock-bottom price of just $334 per Bitcoin.