USA Law and Practice Contributed by: Steven Molo, Robert Kry, Megan Cunniff Church and Walter Hawes, MoloLamken LLP
Recovery of Digital Assets Digital assets provide a new means of perpetrat - ing fraud schemes. The recovery of funds involved in such schemes, however, is more difficult than in ordinary frauds, and many victims never recover their losses. For instance, although enforcement offi - cials have obtained court orders to restrain or freeze digital assets, successfully freezing such assets can prove challenging in practice. Digital assets are often difficult to locate because they are typically held in encrypted digital wallets rather than in bank or broker - age accounts. In addition, digital assets may be put through several layers of “mixing” or other treatment designed to anonymise the assets’ source and own - ership. Assets may also be held overseas or instantly transferred offshore, complicating recovery efforts. To address these difficulties, regulators have attempt - ed to freeze virtual assets as they are transferred through digital “exchanges” or online platforms. How - ever, this approach often relies on co-operation from non-regulated exchanges, which may be lacking or inconsistent, and is generally unable to recover assets that have already passed into overseas accounts. While regulators and law enforcement continue to develop new means to trace, isolate and recover crypto-assets, further technological developments may impede these efforts.
There have been some notable recoveries in cryp - tocurrency actions, however, including the Bitfinex matter where law enforcement recovered approxi - mately 80% of the stolen Bitcoin – worth approxi - mately USD10 billion. President Trump also issued an executive order to create a Strategic Bitcoin Reserve that will be capitalised with bitcoin forfeited as part of criminal or civil asset forfeiture proceedings. Many cases, however, still see recoveries that pale in com - parison to the amount of overall losses. Although prosecutors and regulators have had limited success in recovering crypto-assets, their efforts are ongoing. The shift in focus to pursuing fraud-related actions and protecting retail customers may yield additional recoveries in the future.
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