Home

In the Gloomy World of Bitcoin, Deceit is Quicker than the Law
Download PDF
1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading...

The message was sent out on Twitter: “For insane profits come and join the pump.” The invitation was to a penny stock­style pump and dump scheme, ­only this one involved Bitcoin, the ascending, slightly daunting virtual currency that has beckoned and perplexed people around the world.

Bid ’em up, sell ’em off scams in the financial markets are shut down all the time, though this one and many other frauds involving digital money have gone unchecked. The reason is because government authorities do not agree on which laws apply to Bitcoin­ or even what Bitcoin is.

  
What
Where


A trader known on Twitter as Fontas is the person behind the recent scheme. During a conversation on a secure Internet chat he said he operated with little fear of a crackdown. “For now the lack of regulations allows everything to happen.” Fontas said during the chat that he has total control of the Twitter account, which has thousands of followers, but did not give his identity. He also said that Bitcoin and its many users would benefit when someone steps in to police the financial wild west and that he would stop his schemes when they do.

On Thursday the Chinese authorities brought attention to the issue when declared they were barring Chinese banks from making Bitcoin transactions. The Bank of France issued a warning about the potential risk the same day. The spreading news sent the price of Bitcoin swirling, but quickly bounced back to near its all­time high of around $1,200.  Bitcoins are little more than computer code­ created according to a set algorithm and traded between online wallets using virtual keys. The virtual currencies could become a revolutionary new form of payment in the real world, some people have insisted.

Bank of America was the first major Wall Street Bank to release research on Bitcoin, noting that it could become “a major player in both e­commerce and money transfer.”  Bitcoin has been forced up primarily by people who are betting it will rise, and rise because there is a finite supply. The initial computer program established that only 21 million Bitcoins would ever be created. Because there are no limits on who can purchase Bitcoins, they have attracted all kinds of investors. The existing Bitcoins value is now more than $12 billion after a volatile surge increased the value by more than 1,000 percent over the last month. Because of all of the excitement over the rapid climb, the fraud has been obscured, hacking and theft has become a normal part of the virtual currency world. Especially with the lack of any response from the law enforcement agencies.

Get JD Journal in Your Mail

Subscribe to our FREE daily news alerts and get the latest updates on the most happening events in the legal, business, and celebrity world. You also get your daily dose of humor and entertainment!!




This has allowed more than 30 episodes in which at least 1,000 Bitcoins­ or $1 million at the current rate of exchange­ were stolen or transferred illegally, according to a frequently updated list on the most popular online forum for Bitcoin. 10 cases involved reported losses of more than 10,000 Bitcoins, or $10 million at the current value.  The authorities have only been publicly involved in one of these cases.

This week, the virtual currency world has been abuzz over a theft of 96,000 Bitcoins. These Bitcoins,­ currently worth $100 million, were said to have been taken from an online marketplace known for selling illegal drugs.The cloudy nature of the virtual currency thefts that can be hard to verify, but the increasing stream of episodes underscores how fast con artists can take advantage of new ways of investing and how slow the authorities can be in responding to emerging financial risks. The Association of state securities regulators said they put digital money on top of their 10 threats to investors list for the first time this year. Last month at a hearing, three federal agencies said they were carefully tracking virtual currencies for illicit activity. Judith M. Shaw, the top securities regulator in Maine, said that it was often hard to determine which authority should be cracking down on virtual currency fraud, or even what constitutes fraud in a market that some view as a giant bubble and others as the future of money.



” The jurisdiction has not been clearly established because it’s new uncharted territory,” Ms. Shaw said. “Everyone is just trying to figure out how this is all going to play out.” Five Chinese agencies have released a notice on Thursday, including The Bank of China, said that citizens of the country would still be allowed to buy and sell digital money, but it warned that participants “assume the risks themselves.”  United States authorities have cracked down on criminal use of virtual currencies in a few cases, those have been isolated situations in which the coins have been used for illegal purposes in the real world. But for crimes contained within the Bitcoin network­ like thefts from apparently reputable online wallets where Bitcoins are stored­ there has been almost no accountability.

In Europe,the largest Bitcoin payment processor, BIPS, said last month they were hacked and $1 million worth of Bitcoins were stolen, including coins that were in the personal online wallet of customers. The company, which is still in business, said this week that it would be “unable to reimburse Bitcoins lost unless the stolen coins are retrieved.” The company said that the Danish police were examining the case but added that the authorities could “not classify this as a theft due to the current nonregulation of Bitcoin.” “There is absolutely no consumer protection in any sector of the Bitcoin economy,” said Sarah Meiklejohn, a graduate student at the University of California, San Diego, who researches the industry.

 After writing a paper on Bitcoin transactions this year,Ms. Meiklejohn said she began receiving emails almost daily from victims of theft who asks her to help track down the perpetrators. Ms. Meiklejohn said that despite the long odds of success, she had generally offered to help, knowing that the victims had nowhere else to turn. “I figure I can at least respond to them and provide some sense they are being heard,” Ms. Meiklejohn said.

Regulators have not agreed on how to classify Bitcoin, and that’s part of the problem. The Securities and Exchange Commission has authority to regulate securities, like stocks in the United States. This allowed the agency to punish a Bitcoin Ponzi scheme this year because the agreement between the swindler and the victim was considered a security. The agency has not determined whether Bitcoin itself can be categorized as a security, making it hard for it to crack down on trading fraud.

“It’s becoming something of enough value that these agencies are going to wake up and want to find one of these thieves,” said Patrick Murck, the general counsel at the Bitcoin Foundation, a nonprofit group that promotes virtual currencies. “There is no way that anyone can think this not a real thing that is not worth going after.”

Chinese authorities said on Thursday that Bitcoin was a “virtual commodity that does not share the same legal status of a currency.” In the United States, that classification could put Bitcoin under the Commodity Futures Trading Commission. But that agency has not assumed responsibility. In the immediate future, the most likely source of enforcement may be the Federal Bureau of Investigation’s cybersecurity team.

Image Credit: Tech.com



 

RELEVANT JOBS

Associate Attorney

USA-PA-Exton

ASSOCIATE ATTORNEY McKenna Snyder LLC, a law firm in Exton, PA has an immediate opening for an ex...

Apply now

Attorney

USA-MI-Sturgis

Qualifications: HaasCaywood is seeking associate attorneys for our Coldwater and Sturgis, Michiga...

Apply now

Attorney

USA-MI-Coldwater

Qualifications: HaasCaywood is seeking associate attorneys for our Coldwater and Sturgis, Michiga...

Apply now

Deputy General Counsel / Senior Deputy General Counsel

USA-CA-Sacramento

Cal Cities Culture and Mission Cal Cities is dedicated to creating a collaborative and inclusive ...

Apply now

BCG FEATURED JOB

Locations:

Keyword:



Search Now

Education Law Attorney

USA-CA-El Segundo

El Segundo office of a BCG Attorney Search Top Ranked Law Firm seeks an education law attorney with ...

Apply Now

Education Law Attorney

USA-CA-Carlsbad

Carlsbad office of a BCG Attorney Search Top Ranked Law Firm seeks an education law attorney with 4-...

Apply Now

Education Law and Public Entity Attorney

USA-CA-El Segundo

El Segundo office of a BCG Attorney Search Top Ranked Law Firm seeks an education law and public ent...

Apply Now

Most Popular

SEARCH IN ARCHIVE

To Top