Cryptocurrency fraud

Legal remedies for victims 

Cryptocurrency has quickly become a popular investment opportunity, with pioneer crypto currencies like Bitcoin and Ethereum valued from tens of thousands to millions of rands. However, cryptocurrency is highly volatile and still largely unregulated. As the popularity of cryptocurrency increases, so too does the risk of cryptocurrency fraud. 

Need immediate steps? See: Crypto scam recovery South Africa.

What are cryptocurrencies?

Cryptocurrency is a relatively new and rapidly evolving class of digital assets that has attracted significant global attention since the introduction of Bitcoin in 2008. Unlike traditional fiat currencies such as the South African rand or US dollar, cryptocurrencies operate independently of central banks or governments. Instead, they are based on a decentralised network of computers that collectively verify and process transactions, eliminating the need for intermediaries such as banks or financial institutions.

At their core, cryptocurrencies are digital representations of value that are secured using cryptography. The use of cryptographic techniques ensures transactions are secure, transparent and nearly impossible to alter once recorded on the blockchain, the underlying technology that powers most cryptocurrencies. However, although cryptocurrency is inherently secure, fraudsters and scammers have devised innovative ways to steal crypto.

Types of cryptocurrency fraud

Cryptocurrency scams come in different guises. Just as financial criminals try to steal money from your bank account or put fraudulent charges on your credit card, crypto scammers use wily techniques to access your crypto. Crypto scams typically seek to steal private information, such as security codes, or deceive individuals into transferring cryptocurrency to a compromised digital wallet where crypto is stored. Furthermore, as cryptocurrency exchanges enable conversion into fiat currencies, fraudulent schemes typically involve personal data theft, mass-marketing fraud, imitating and phishing. Fraudsters create accounts using stolen identities obtained by hacking emails, servers and other devices that hold personal data. 

To steal personal data, the crypto criminal creates new accounts and unlawfully disguises their identity under the name of the victim to gain access to the victim’s crypto accounts and make withdrawals.

Phishing is a form of social engineering aimed at stealing a user’s account information. In the case of cryptocurrency, scammers attempt to gain access to a user’s name, password or private keys.

Mass-marketing fraud is a form of phishing that uses widespread communication methods such as email and social media. This type of fraud often involves emails or fake social media accounts that purport to represent an official cryptocurrency exchange. Alternatively, the criminals may use a legitimate but hacked account with many followers to promote a cryptocurrency giveaway in exchange for users’ credentials.

Legal remedies for cryptocurrency fraud victims

Crypto is not recognised as legal tender in South Africa and is not backed by the South African Reserve Bank. Crypto functions independently of central banks and carries high volatility – the risk of value fluctuations. Because there are no specific laws or regulations governing crypto assets, there are no regulatory compliance requirements for local trading of these assets. However, although cryptocurrency is not fully regulated in South Africa, it is subject to certain legal frameworks. Legal protection or recourse for users, traders or intermediaries of crypto assets relies on general common law principles. There are several options available to victims of cryptocurrency fraud.

Civil litigation 

Victims can pursue civil litigation to recover their lost funds. This involves taking the fraudsters to court for damages and compensation. Since cryptocurrencies operate in a decentralised manner and transactions are usually irreversible, the process of recovering lost funds can be challenging. However, in the rare cases where scammers can be identified, victims can sue for fraud, misrepresentation or breach of contract.

Criminal prosecution

Cryptocurrency fraud is not only a civil matter; it can lead to criminal charges. If the fraudsters are identifiable, victims can lodge a complaint with the South African Police Service (SAPS). The crime may fall under fraud, theft or money laundering, depending on the case specifics.

The Financial Intelligence Centre (FIC) and other financial regulators such as the Financial Sector Conduct Authority (FSCA) may investigate fraudulent activities that involve cryptocurrencies, especially if there is potential for wider financial market manipulation.

Cryptocurrency complaints investigations

On 19 October 2022, the FSCA officially recognised crypto assets as financial products under the Financial Advisory and Intermediary Services Act of 2002 (FAIS Act). Before this declaration, the Office of the FAIS Ombud was unable to investigate complaints related to crypto assets, as they were not considered financial products and were outside the Office’s jurisdiction. With the new classification, providers of crypto assets are now subject to the FSCA’s regulatory authority, and complaints against these providers can now be investigated by the Office of the FAIS Ombud.

Let SD Law help

If you have been a victim of cryptocurrency fraud, or if you have questions about crypto or cybercrime, give Cape Town attorney Simon Dippenaar a call on 086 099 5146 or email sdippenaar@sdlaw.co.za.

Further reading:

• The relentless rise of cybercrime
• Cybercrime – how to avoid being scammed
• Cybercrime – Court Reaffirms Who Bears Responsibility For Payment Where Email System Is Spoofed!!
• Cyber extortion

SD Law – Simon Dippenaar & Associates Inc.

Attorneys, Notaries & Conveyancers

SD Law is a Cape Town law firm with a strong practice in divorce and family law, urgent eviction matters, antenuptial contracts, liquor licence applications and selected commercial disputes. Clients instruct us when the matter is urgent, high-stakes or strategically sensitive, and when they want direct, clear legal advice backed by practical litigation experience.

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