USA Law and Practice Contributed by: Steven Molo, Robert Kry, Megan Cunniff Church and Walter Hawes, MoloLamken
before conducting certain digital asset activities within the state. Recovery of Digital Assets Digital assets provide a new means of perpe - trating fraud schemes. The recovery of funds involved in such schemes, however, is more difficult than in ordinary frauds, and many vic - tims never recover their losses. For instance, although enforcement officials 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 brokerage accounts. In addition, digital assets may be put through several layers of “mixing” or other treatment designed to anonymise the assets’ source and ownership. Assets may also be held overseas or instantly transferred off - shore, complicating recovery efforts. To address these difficulties, regulators have attempted to freeze virtual assets as they are transferred through digital “exchanges” or online platforms. However, this approach often relies on co-operation from non-regulated exchanges, which may be lacking or inconsistent, and is gen - erally unable to recover assets that have already passed into overseas accounts. While regula - tors 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 cryptocurrency actions, including the FTX mat - ter where substantial recoveries could enable the company to repay between USD14.7 and USD16.5 billion to its customers. 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. However, many cases still see recoveries that pale in comparison 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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