Hacked and scammed: Welcome to crypto ‘wild west’

When Marco Lachmann-Anke and his wife, Peggy, learned in January that hackers cracked a 40-character password and cleaned out their cryptocurrency wallet, they did not go to the police or alert the tokens’ issuer, the Berlin-based technology group IOTA.

They bought more coins.

The Cyprus-based German couple, who describe themselves as financial educators, figured they had no chance of recovering the coins and it was not even clear who might take up their case.

Yet they took the nearly US$14,000 loss in stride — something that comes with the territory when one bets on a new, exciting technology in a yet-unregulated market.

“We really believe in cryptocurrencies. We have studied this for about a year before investing, so we are aware of the risks,” Peggy Lachmann-Anke said. “There was nothing we could do.”

Far from unusual, the episode is emblematic for a market where few rules apply and where investors’ faith in the blockchain technology goes hand in hand with the belief that it also helps criminals cover their tracks so well that trying to catch them is a fool’s errand.

Patrick Wyman, an FBI supervisory special agent at the financial crimes section of the agency’s anti-money laundering unit, acknowledged that cryptocurrencies pose some unique challenges.

“A decentralized currency system like bitcoin, or another form of virtual currency, is not governed by any entity, suspicious reporting activity, and any anti-money laundering compliance,” Wyman said.

Various estimates have shown that cryptocurrency crime is on the rise, keeping pace with the market’s rapid growth.

That forces investigators to focus on high-profile cases, security professionals and officials said, effectively leaving small investors to their own devices.

“We do not pretend that every law enforcement agency is devoting resources to every single crime. That would not be possible,” said Jaroslav Jakubcek, an analyst at Europol, which serves as a center for the EU’s law enforcement cooperation, expertise and intelligence.

Officials still encourage people to report cryptocurrency theft to local police like any other crime, saying failing to do so only emboldens criminals.

However, because many victims simply do not see the point, cryptocurrency theft is far more common than any published estimates suggest, security professionals said.

According to financial research firm Autonomous Next and Crypto Aware, which works with investors affected by cryptoscams, about 15 percent of cryptocurrencies have been stolen between 2012 and the first half of this year, representing a cumulative US$1.7 billion in value at the time of the theft, and with a rising tendency.

In the first half of this year alone, more than US$800 million has been stolen, the data showed.

Yet Lex Sokolin, a partner and global director of fintech strategy at the firm, estimated that as much as 85 percent of crimes go unreported and said the published statistics only represent publicly reported heists.

Interviews with half a dozen victims painted a similar picture. Out of that group only two reported their losses to the authorities and one soured on cryptocurrency investments.

Armin Fischer, a Vienna-based IT specialist said that he lost about US$5,300 in ether coins in a phishing scam in the summer of last year and immediately alerted the local police just to find out that the duty officer had no idea what he was talking about.

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