Crypto scam case study: How quick action and on-chain analysis recovered stolen funds

To protect the privacy of the individuals and exchanges involved, we’ve anonymised certain details. 

How Bob fell victim to a crypto scam

About a year ago, a person we’ll call Bob became the target of a crypto scam that began on a popular social media platform. Like many victims of crypto scams, Bob was tricked into signing a transaction from his unhosted wallet to claim an airdrop*.

What made this crypto scam particularly deceptive was that the airdrop was real – launched by a reputable project in the crypto industry. But when Bob reached out to the project’s team via social media, he was contacted by a scammer impersonating a support representative. As a result, his wallet was drained of all its XRP holdings.

Quickly tracing the stolen funds

Because XRP transactions are fast, responding quickly was crucial. Bob was promptly connected with a well-known expert in tracking blockchain activity: Thomas Silkjaer. Within 20 minutes, Thomas had traced the stolen XRP to multiple wallet addresses and exchanges.

As in many crypto scams, the scammer tried to cover their tracks by converting the stolen funds into USDT on a DeFi platform and spreading them across multiple wallets. In this case, they began with a test transaction of 1,000 XRP and successfully converted it. They then proceeded to move and convert another 30% of the stolen funds.

Freezing fraudulent transactions with timely on-chain alerts

At this point, Thomas had already contacted the DeFi platform’s on-chain support team to warn them of the crypto scam and alert them to incoming funds. Thanks to this timely intervention, when the scammer attempted to move the remaining 60% of the stolen XRP, the platform froze the transaction.

The complex process of recovering stolen crypto 

However, recovering the funds proved challenging. The DeFi platform was registered in Saint Vincent and the Grenadines, and required Bob to prove ownership of the stolen crypto. Bob was able to do this and a police case was opened in South Africa, where he resides. The case was escalated to the Specialised Commercial Crimes Division who played an essential role in the investigation.

The local police investigators contacted the offshore exchange directly, but the exchange remained sceptical and requested a certified, notarised affidavit to confirm Bob’s identity. This posed a challenge: South Africa’s Department of International Relations and Cooperation (DIRCO) had no representation in Saint Vincent and the Grenadines.

Because the police investigators’ role was investigative rather than judicial, Bob needed to obtain a high court order to complete the necessary legal steps. Despite the costs and complexity, the high court certified the affidavits and supporting documents.

A partial but timely recovery

After nine months of back-and-forth, Bob recovered 60% of his stolen XRP – just in time for a significant XRP price surge. While not a full recovery, it was a significant win given the circumstances and a testament to the power of rapid response and skilled forensic analysis in the aftermath of a crypto scam.

Key takeaways from this crypto scam case study

• Stay vigilant: Many crypto scams start on social media, where fraudsters pose as trusted sources.
• Act fast: The window to stop a scam and recover funds is often measured in minutes.
• Use the tools available: On-chain analysis is a powerful tool for tracing stolen funds.
• Get expert help: Police investigators and other professionals like Thomas Silkjaer are making a real difference in the fight against crypto scams.
• Legal action may be necessary: In many cases, legal support and court orders are essential to recovering funds.

This case serves as a powerful reminder of how easily a crypto scam can happen, even to informed users, and how quick thinking, the right connections, and expert knowledge can help reverse the damage. Most importantly, it shows that hope is not lost – even in the fast-moving world of crypto crime.

*Definition: Airdrop: In the crypto industry, an airdrop is the free distribution of cryptocurrency tokens to a large number of wallet addresses, usually as part of a marketing, promotional, or community-building campaign.

Disclaimer: Always conduct extensive research before investing in or using cryptocurrency for financial transactions. Understanding the associated risks and benefits is crucial when exploring alternatives to traditional banking.