The need to play safe with Cryptocurrency

A headline-grabbing case involving allegations of cryptocurrency investment fraud and online gambling has seen the US authorities take action. But Syedur Rahman of financial crime specialists Rahman Ravelli emphasises the importance of carrying out your own investigations before investing in such assets.

There were plenty of headlines around the world when Douglas Jae Woo Kim was accused of defrauding investors by persuading them to send him millions of dollars’ worth of cryptocurrency that he then spent on gambling websites.

The New York-based 27-year-old has been charged with wire fraud as a result of allegations that he defrauded three investors out of bitcoin and ether worth more than $4.5 million. It is alleged that he told them he was a cryptocurrency trader looking for loans for a low-risk investment that he said he had already invested hundreds of thousands of dollars in. The US Department of Justice (DOJ) alleges that Kim said the loans would be repaid at a high level of interest but actually sent all or most of the funds he received to offshore crypto gambling websites.

If Kim is convicted he could be jailed for up to 20 years and face sizeable financial penalties, which would be a newsworthy conclusion to a story that has already generated plenty of media coverage. Yet in this case, the story behind the story may be more notable.

That is because Kim’s much-publicised case represents a shift in the authorities’ approach to cryptocurrency. The fact that the DOJ is now taking the decision to prosecute cases of this type is the clearest indicator yet that US authorities are starting to take meaningful action where victims are being defrauded through their use of cryptocurrency. It may have taken some time – and there will be those who argue it should have taken much less time – but we are now seeing the authorities getting to grips with the issue of crypto-related crime.

But while this can only be viewed as progress, it should be made clear that nobody can afford to be complacent when it comes to cryptocurrency. While cryptocurrency is a relatively new concept it is worth emphasising that those who have any involvement with it – and those who are thinking of becoming involved with it – need to use good, old-fashioned caution; just as they would with more traditional forms of currency and wealth.

Whatever the investment opportunity, it is vitally important that those considering making an investment carry out due diligence – both on the product or scheme that is being offered to them and on the individuals who are offering it. Such due diligence has to go beyond asking a few basic questions which, in all probability, are unlikely to prompt someone looking to commit fraud to drop their guard and confess all. When it comes to finance it is necessary to assess whether those who are involved in the creation – or the promotion – of an investment scheme are regulated or authorised to do so.

If there is even the slightest doubt, would-be investors need to undertake further enquiries. Basic research on the internet can be a worthwhile starting point. Even if a website looks legitimate, it might be worth performing a reverse image search – using the internet to see if the images on that website have appeared elsewhere – in order to determine if that site is genuine or is simply using material stolen from other sites to pass itself off as genuine.

Any testimonials on the site in question should also be read carefully – even cynically – to see if there is anything that does not ring true or gives cause for concern. What should also be encouraged is seeking the input and opinions of others. If an investment opportunity provokes a sense of doubt it may well be possible to liaise with others via internet forums to see what their experiences of that opportunity have been or what light they can shed on what is being offered. It is unlikely that you are the only one to have been offered that particular investment.

Cryptocurrency may be the shiny new investment opportunity. But, just as with more traditional investment options, the more research you conduct the less likely you are to suffer losses to fraud.

BIO: Syed Rahman is Rahman Ravelli’s Legal Director. His great depth of experience in serious fraud, business crime and cryptocurrency and his expertise in defending white-collar crime and civil recovery actions brought by the National Crime Agency have earmarked him as a leading defence solicitor.

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