In a small win for law enforcement, Binance, the world’s largest cryptocurrency exchange, recently transferred 318,000 USDT (Tether USD), a cryptocurrency pegged to the value of the U.S. dollar — worth about the same amount in US currency — to an account controlled by the Santa Clara County District Attorney’s office.
Rick Jenkins, a detective with the Gilroy Police Department, a city south of San Jose, wrote in a May 13 search warrant affidavit obtained by Forbes that “an unknown suspect” met a victim on a dating website, and eventually “tricked the victim” into investing over $243,000 worth of USDT into a fake cryptocurrency exchange.
The seizure marks the first time that romance scam-related cryptocurrency losses have been recovered in this Silicon Valley county, according to Erin West, a veteran prosecutor with the Santa Clara County District Attorney’s Office. Authorities are now beginning the process of returning the seized funds to victims.
The seizure shows that regardless of a cryptocurrency exchange’s jurisdiction — Binance is based in the Cayman Islands — even multi-national crypto firms comply with federal and local regulatory and legal requirements.
According to the Federal Trade Commission, losses from romance scams, many carried out using online dating sites, have “skyrocketed” recently, and in 2021, reached an all-time high, of $547 million. A subset of these romance scams involve cryptocurrency, and are sometimes known as “pig butchering” scams, in which victims are enticed to put in more and more money – fattening them up – before disappearing with vast sums of cryptocurrency.
“It’s the first time we’ve [recovered money] in a pig butchering scam,” West said.
Indeed, Jenkins, who is assigned to the “REACT Task Force,” an alliance of local, state, and federal law enforcement officials in the Bay Area, told Forbes that he was very pleased with the outcome in this case.
“This is definitely a huge win for us,” he said.
The FTC also said that payments by cryptocurrency to romance scammers have grown dramatically, having jumped to $139 million in 2021, or “more than 25 times those reported in 2019.”
West added that her office has taken on such cases with new urgency.
“Over the past month, we have become flooded with pig butchering cases,” she said. “Not just [victims] local to Santa Clara county but nationwide and even worldwide.”
Jenkins concurred with this assessment.
“Probably within the past year it’s been nonstop, multiple [cases] a week,” he said, speaking of cryptocurrency scam cases generally.
Matthew Price, Binance’s senior director of investigations, who said he was speaking to Forbes while in Brazil training law enforcement agencies there, said that such seizure warrants are routine.
“We respond to seizure warrants from around the world all day long,” he said, estimating that the company receives approximately “20 to 30 a day.”
However, when Forbes followed up and asked for specific instances where Binance had complied with seizure warrants, it declined to do so.
“We are unable to comment on specific matters or cases,” emailed Dewi Mustajab, a Binance spokesperson. “We do want to emphasize that we take our legal obligations very seriously. We have a strong record of assisting law enforcement agencies around the world, including in the United States and other jurisdictions.”
The total amount recovered from Binance includes the $243,000 invested from a victim identified in the affidavit as “ASR,” of Santa Clara county, among numerous others from around the world.
ASR, according to the affidavit, met an “unknown suspect on a dating application,” before being encouraged to move the conversation to WhatsApp. The suspect then pushed ASR to a website called ethcoino.com, which promised “five to ten percent daily profits by investing in a DeFi Liquidity Mining pool through a Smart Contract.”
However, this mining pool turned out to be a fraud. After the contract period ended, and ASR expected to receive a return, the purported customer service agent told ASR that they had to deposit an additional $37,000 to cover “taxes” based on “profits” generated in the mining pool.
ASR attempted to withdraw his money four times, failing each time. Eventually, by February, ASR reached out to federal agencies, including the FBI and the Federal Trade Commission, and spoke with county law enforcement in May.
On May 6, ASR told county investigators that he had traced his cryptocurrency to Binance.
As of May 18, the Santa Clara District Attorney’s Office was in possession of the seized USDT, and will begin the process of returning the seized funds in coming weeks.
Jan Santiago, deputy director of the US-based Global Anti-scam Organization, or GASO, a largely volunteer-run support group for victims of such scams, told Forbes that being able to return money to pig butchering victims is “very rare” in their experience.
The seizure is a fresh reminder of what’s known as “not your keys, not your crypto,” the principle that Bitcoin was created to allow for the movement of value without the need of middlemen, and that re-introducing centralized cryptocurrency exchanges reintroduces the need for trust.
Bitcoin and most other cryptocurrencies can be transferred by sending the asset to a public key, or wallet, and “signing” the transaction with a private key that only the owner has. Most centralized exchanges actually retain this key, giving them the ability to transfer funds ostensibly owned by others on paper.
West, the Santa Clara County prosecutor, said that this small victory has energized her office.
“I think what this tells us is that local law enforcement has a venue to disrupt this pig butchering scam that is leaving victims heartbroken and feeling desperate,” West said.
“While we may not be able to put handcuffs on suspects we are certainly able to provide our victims with some recovery.”