Two similar legal disputes over alleged bitcoin fraud show that, while Bitcoin may be indestructible, humans are not.
This is an editorial opinion by Phil Snyder, an educator who teaches blockchain, Bitcoin and all media at the University of Houston.
Sam Bankman-Fried, FTX, SOL, CEL, XRP, ETH, etc., are some of the crypto scams and scammers we hear about. But there are also plenty of low-profile ripoffs that fly under the mainstream media’s radar.
Houston Attorney Andrew J. Cobos of the Cobos Law Firm includes Bitcoin-related legal disputes in his litigation practice. According to an interview with Cobos for this article, one of the current cases involves an elderly woman who, in 2017, was approached by a young pastor in her church, who encouraged her to invest in bitcoin with his help. The woman and the man signed a verbal agreement that he would transfer $80,000 to her, and that she would use the money to buy bitcoins and keep them safe for her. Now, the plaintiff in the case, an elderly woman, is accusing a man of stealing her bitcoins through her knowledge and use of her private key. A trial in this case is set for Spring 2023 in Harris County, Texas (case number 2021-51487).
According to the lawsuit, the pastor bought and held the bitcoins for the elderly woman until July 2020, when the woman asked for the bitcoins back. The pastor then ordered and set up a Trezor hardware wallet containing 7,742 bitcoins, and gave the woman the Trezor device along with a “seed phrase card” completed by the pastor. The next day, the woman opened her Trezor to find that all her bitcoins had been removed from her Trezor device.
Cobos said the pastor kept a copy of the seed phrase card and recreated the wallet after giving him the Trezor, and then transferred all the bitcoins to a separate wallet he controlled. The elderly woman contacted the pastor to inquire about the missing assets and was told that the system had been “hacked”. With no recourse through law enforcement, the elderly woman sought the help of a lawyer and the court system.
According to Cobos, this type of malfeasance appears to be on the rise with the adoption of Bitcoin, as newbies to the space are being exploited by grassroots fraudsters. Although this is new case law, such scams are not new in the Bitcoin space. Even some of the most sophisticated investors have been involved in this type of litigation.
Back in 2012, the Winklevoss twins contracted with Charlie Shrem to buy $750,000 in bitcoin, which was worth only $18.81 at the time. According to court documents, WCF (Winklevoss’s fund) stated that Shrem could not account for $61,000 of money transferred to him, and that he had bought 5,000 bitcoins for himself. WCF claimed that the stolen bitcoins were worth $26 million at the time of filing.
According to the case text:
“WCF hired an accountant in February 2013 to conduct an audit, and the auditor found that Shrem could not account for $61,000 sent to him, which is equivalent to about 5,000 Bitcoins at the time based on the average price of $12.15 per Bitcoin. Shrem denied this, but did not never provided additional information. Another company hired by WCF noticed that Shrem’s Bitcoin address received 5,000 Bitcoins on December 31, 2012, almost exactly the amount of the deficiency identified by WCF accountants.
The case was settled out of court in April 2019 without disclosing the terms. However, contrary to the filing by the twins’ attorneys that stated “…WCF and Shrem will bear their own attorneys’ fees and costs,” Shrem said in a statement to Coindesk that the Winklevosses were ordered to pay Shrem’s attorneys’ fees.
I believe that the most important lesson that we can learn from these two similar stories is the oft-repeated maxim that Bitcoiners should keep repeating: “Don’t trust, verify!” Although Winklevoss has not known Charlie for a very long time, they trust him because he knows Bitcoin better than they did back in 2012. He is one of the very few well-known OGs around at the time. They learned their lessons the hard way, just like old women do. Even though the young pastor was supposed to be a prominent member of the church, he relied heavily on his expertise, blindly trusted his integrity, and waited three years to verify that he still controlled 7,742 bitcoins.
“Experts” in Bitcoin who call themselves “Bitcoiners” may be trained in the art of deception.
Yes, the Bitcoin protocol is virtually perfect and incorruptible, but humans – even Bitcoiners – are not (big shock gasp). As in any place where great wealth is at stake, there is a wide spectrum from naive people to career parasites – pigeons and vultures. Let us decide to be eagles – defenders of our nest eggs – for ourselves and others. Let us continue to diligently educate ourselves and our “orange-pillees” while being vigilant to seek out and expose “Bankster Scam Fraud” and other wolves in sheep’s clothing in the world at all levels. fraud.
This is a guest post by Phil Snyder. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.