Cryptocurrency Theft And Fraud Investigations
π Overview: Cryptocurrency Theft & Fraud
What are the typical offences?
Phishing, hacking, or SIM swaps to steal crypto assets
Ponzi or fake investment schemes using crypto tokens
Rug pulls in Initial Coin Offerings (ICOs) or DeFi projects
Using stolen or laundered crypto for terror/crime financing
Since crypto operates outside traditional financial systems, enforcement and legal interpretation are still evolving.
π Landmark Case Law on Cryptocurrency Theft & Fraud
Here are 6 major cases (Indian and international) where courts dealt with crypto-related frauds or thefts, and their implications on investigations and prosecution.
1. Amit Bhardwaj Bitcoin Ponzi Case (India)
Court: Pune Sessions Court / Enforcement Directorate investigations
Facts:
Amit Bhardwaj and associates launched companies like GainBitcoin and GBMiners, promising huge returns on Bitcoin investments. Thousands of investors were defrauded.
Charges:
Cheating under IPC Sections 420, 406
Money laundering under PMLA, 2002
Investigative Highlights:
Wallet addresses were traced using blockchain analysis tools
Assets were frozen under FEMA and PMLA
Legal Impact:
Set precedent for treating crypto schemes as financial frauds under Indian Penal Code
Courts held that digital currency is an asset, hence subject to traditional property and fraud laws
2. Nashik Bitcoin Theft Case (2021)
Court: Bombay High Court (case appealed for bail by police officer accused)
Facts:
A police inspector was accused of illegally seizing Bitcoins from accused hackers and transferring them to personal wallets.
Legal Issues:
Misappropriation of seized digital evidence
Criminal breach of trust by a public servant (IPC Section 409)
Courtβs View:
Cryptocurrency classified as property
Chain-of-custody protocols for digital wallets emphasized
Called for proper digital forensics and asset recovery mechanisms
Importance:
First Indian case involving law enforcement officers misusing crypto assets
Triggered push for SOPs on handling seized digital assets
3. RBI v. Internet and Mobile Association of India, (2020) 10 SCC 274
Court: Supreme Court of India
Facts:
RBI had restricted banks from dealing with cryptocurrency exchanges in 2018.
Legal Issue:
Was the RBI ban unconstitutional?
Judgment:
Supreme Court struck down the RBI circular as disproportionate
Recognized legal vacuum around crypto, but allowed innovation
Held that fraud prevention must not come at cost of freedom to trade
Relevance to Fraud:
Though not about theft directly, this case influenced:
Investigations β as banks were previously barred from aiding crypto probes
Need for a balanced regulatory approach to prevent fraud without stifling innovation
4. U.S. v. Ross Ulbricht (Silk Road Case)
Court: U.S. District Court, Southern District of New York
Facts:
Ross Ulbricht created Silk Road, a darknet marketplace using Bitcoin for illegal transactions.
Charges:
Drug trafficking
Money laundering
Computer hacking
Fraudulent identity use
Investigative Strategy:
FBI tracked transactions via blockchain tracing
Bitcoin wallets were seized using private keys recovered from digital devices
Outcome:
Ulbricht was convicted and sentenced to life imprisonment
Seized crypto assets were later auctioned by U.S. Marshals
Significance:
Showcased power of blockchain analysis in crypto crime investigations
Set precedent for seizure and forensic value of crypto wallets
5. PlusToken Scam (China/South Korea, 2019)
Court: Jiangsu Yancheng Intermediate Peopleβs Court, China
Facts:
Fraudulent investment scheme involving over $2 billion worth of crypto assets from 2 million investors.
Charges:
Organizing and leading a pyramid scheme
Money laundering
Fraud and illegal fundraising
Investigative Strategy:
International cooperation via Interpol
Seizure of digital wallets
Chain analysis of Ethereum and Bitcoin wallets
Outcome:
15 people convicted
Billions in digital assets were confiscated and partially auctioned
Relevance:
Case showed that massive crypto frauds require cross-border coordination
Encouraged courts to treat digital tokens as financial instruments
6. BitConnect Fraud Case (U.S./India, 2022)
Courts: Ongoing in U.S. District Court + Indian agency cooperation
Facts:
BitConnect was a crypto lending platform that promised high returns, which collapsed into a Ponzi scheme.
Charges:
Securities fraud
Wire fraud
Criminal conspiracy
Indian Involvement:
Indian investors lost crores
Indian agencies like ED tracked money flows, froze crypto wallets
Importance:
Cross-jurisdiction investigation using wallet analytics + IP tracing
Prosecution involves both civil (securities law) and criminal fraud elements
π Key Legal & Investigative Principles
| Concept | Application in Crypto Crime |
|---|---|
| Section 420 IPC (Cheating) | Applies when deception leads to wrongful gain using crypto assets |
| Money Laundering (PMLA) | Laundered or anonymized crypto (via mixers or DeFi) falls under AML offences |
| Digital Evidence Act (IT Act, 2000) | Emails, wallet logs, private keys used as admissible evidence |
| Property Seizure | Courts now allow freezing & auctioning of cryptocurrency assets |
| Chain of Custody | Wallets and seed phrases treated like digital property needing secure handling |
π§Ύ Summary Table of Cases
| Case Name | Jurisdiction | Crime Type | Legal Contribution |
|---|---|---|---|
| Amit Bhardwaj Case | India | Ponzi fraud | First major Indian crypto scam prosecuted under IPC & PMLA |
| Nashik Bitcoin Theft | India | Theft by police | Highlighted gaps in crypto asset seizure protocols |
| IAMAI v. RBI | India | Policy issue | Balanced fraud concerns with trade freedom |
| Ross Ulbricht (Silk Road) | USA | Dark web crime | Blockchain tracing + seizure precedent |
| PlusToken Scam | China | Pyramid scheme | Cross-border crypto fraud & enforcement |
| BitConnect Case | USA/India | Investment fraud | Joint international investigation model |
π Conclusion
Cryptocurrency fraud and theft are now treated as serious financial and cybercrimes. Courts and investigators have adapted by:
Recognizing crypto as property or financial asset
Allowing seizure, freezing, and auction of digital wallets
Demanding better chain-of-custody and forensic protocols
Applying existing criminal laws (cheating, breach of trust, conspiracy) to the crypto world
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