Requests were unsuccessful, say scam victims.
“They’re trying to be a financial institution without the infrastructure to back it up,” said Eric Rosen, a Roche Freedman lawyer representing some 96 victims in the arbitration request, which is akin to a lawsuit, filed. against Coinbase.
“There were no procedures in place to stop these frauds,” Rosen said. “Of course, the scammers quickly realized this and asked the victims to download the Coinbase wallet.”
Many victims lost their life savings. The request says rules requiring banks to reimburse debit card users for unauthorized transfers should also apply to Coinbase customers.
Coinbase did not immediately respond to a request for comment on the arbitration request. Earlier this year, the company said it was working with law enforcement and regulators to thwart the scams.
Arbitration could be the start of a settling of accounts whether crypto’s software-based ideology of self-sufficiency and governance can survive contact with the highly regulated traditional financial system. If the arbitration request results in an order requiring Coinbase to reimburse its customers, it offers the possibility of a path forward for victims of a massive ongoing scam that The Washington Post reported in April had already caused thousands of victims over $60 million in losses. The details Participate in Coinbase’s Demand for Arbitration, some of whom were scammed last August, say they lost more than $21 million in total.
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Many have been forced by Coinbase Wallet’s Terms of Service to turn to arbitration instead of challenging them via US courts. The arbitrator’s decision will not create a formal legal precedent, but will help answer one of the key questions of the emerging era of crypto: do the existing rules of the financial system apply to crypto companies? change ?
Unlike other scams in which someone is tricked into sending money somewhere, in this scheme individuals the money was stolen directly from their accounts. After meeting the victims through social media, dating apps or texting with the wrong number, the scammers said that high returns were available through “cash mining”; a potential investor it was enough to buy a “mining certificate”, by clicking on a prompt in Coinbase Wallet saying “confirm payment”.
The certificate wasn’t real and the process wasn’t really a payment. Clicking on these harmless-looking vouchers would register a single line of computer code allowing crooks to steal the crypto deposited in an account weeks or months later. Coinbase “did not have any procedures in place to stop these frauds,” Rosen said. “They didn’t even seem to try. Of course, the scammers quickly realized this and literally asked the victims to download the Coinbase wallet.
Victims tell similar stories: the scammer would spend weeks tricking them into investing more, until one day their money was gone. A victims’ advocacy group calls it a “pig slaughter” scam in which victims’ stories are fattened like pigs to be slaughtered.
Reports from ProPublica and Vice indicate that at least some of the frontline scammers are themselves victims of human trafficking in Southeast Asia, forced to work under threat of violence. This week, Delaware State’s Director of Investor Protection has issued a cease and desist order against more than 15 people it says are “involved in or working in conjunction with” those who contacted the alleged victims .
But some of those who lost money say they only see the perpetrators as part of the story.
“I blame Coinbase way more than even the scammers because the scammers couldn’t have been effective without Coinbase,” said James Osbun, who says he lost $77,000 to the scam, in a statement. interview.
The level of legitimacy conferred by a company such as Coinbase combined with a lack of red flags caused Osbun to sue, he said, when he would have otherwise stopped.
“At a minimum, let me know what my account is doing,” Osbun said, referring to the stealth smart contract. ‘You put your funds at risk: continue? Yes or no?’ They didn’t even do that,” he added.
Over the past few months, Coinbase has adjusted the warnings it presents in its wallet app, now showing that a website is asking for permission to withdraw a huge amount of money from an account. (However, a wallet app in the main Coinbase app still appears to be vulnerable; it doesn’t specify that signing a smart contract could give a website access to someone’s entire balance. )
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For years, regulators paid relatively little attention to crypto. But as its popularity with ordinary Americans skyrocketed in 2020, so too have fraud allegations, as borderless digital money has turned into a gold rush for thieves. foreign, including the North Korean government.
Meanwhile, state and federal regulators have taken action against some companies. The Securities and Exchange Commission has filed lawsuits against some cryptocurrency companies and promoters, claiming they violated securities laws. The cryptocurrency industry hit back, arguing that these laws, which normally apply to stocks, should not be applied to digital currencies and decentralized tokens.
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Experts think about the importance of Coinbase the case goes far beyond these victims.
“If arbitrators find for these plaintiffs, that means anyone who lost money in a crypto scam is going to call an attorney,” said Lee Reiners, policy director at Duke Financial Economics Center and a Duke Law fellow who made research on crypto and financial scams.