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INSIGHT: Crypto Advancements Stir Legal Work in Investigations, Asset Tracing

Dec. 17, 2019, 9:01 AM

Today, there are more than 2,200 types of cryptocurrency in the global markets, and an estimated 34.6 million digital wallets in use. Along with its advancements, cryptocurrency has also stimulated a rise in scams, crimes, theft, and illicit financing. For legal counsel, this has introduced a new and rapidly growing practice area around litigation and investigations into cryptocurrency trading and transactions.

The legal industry is just scratching the surface of what is likely to become a significant body of work around cryptocurrency tracing and disputes. Regulators are driving some of these matters.

Agencies including the Securities and Exchange Commission are investigating suspected incidences of crypto fraud, and probing multimillion-dollar cryptocurrency and token securities offerings being launched by privately held and publicly traded companies. Litigation—between individuals and/or corporations—centered on cryptocurrency theft, ownership, and misuse is also on an upswing.

We’ve seen this firsthand within our practice at FTI, with criminal, civil, and regulatory cases emerging. Over the last three months, the number of clients reaching out for support around investigations into cryptocurrency transactions and tracing, particularly for civil litigation, has increased by more than 100%.

In an ongoing investigation of alleged theft of bitcoin via malware, our team is conducting a deep forensic analysis of transaction history and examination of the validity of certain deposition statements made by the claimant.

In another matter, the U.S. Commodity Futures Trading Commission launched an investigation into a Hong Kong-based crypto exchange to determine whether it allowed U.S. citizens to transact on its platform (which would be a violation of rules as it is not registered with the agency, which holds jurisdiction over futures and derivatives based on crypto assets). The CFTC has given indication that the probe may lead to legal action.

While these matters are still ongoing, they provide a glimpse at the type of work legal teams will increasingly face as cryptocurrency becomes more pervasive throughout the global economy. The most common types of legal cases emerging around cryptocurrency are summarized below.

Asset Tracing

While many people believe that cryptocurrency is untraceable, it is actually easier to trace than cash. Asset tracing for cryptocurrencies examines the full lifecycle of a cryptocurrency account.

Investigators may use software tools and traditional forensic methods to search, review and analyze the origination and transaction activity of digital wallets and cryptocurrencies across their history. Cryptocurrency asset tracing is useful in the same types of cases in which traditional asset tracing may be employed (e.g. fraud, payment skimming, etc.), but wherein the funds in question are part of the blockchain.

Regulatory Compliance

Legal teams may be increasingly involved in compliance matters relating to cryptocurrency assets. The SEC, CFTC, IRS and other government agencies may issue a probe to determine the legality of a corporation’s ownership and use of cryptocurrency accounts and/or tokenized economies.

Regulatory issues may also arise around anti-money laundering and Know Your Customer requirements. To date, regulators have remained vague about the parameters and guidelines on this front, so it is important for counsel to stay abreast of new developments and work with experts that can advise on best practices.


Counsel should be prepared for a wide range of disputes relating to cryptocurrency. For example, partners in a cryptocurrency business may fight over ownership of assets. Anti-competition loss, Racketeer Influenced and Corrupt Organizations Act (i.e. RICO) claims, class actions, contract violations and fair competition are additional examples.

Cryptocurrency Crime

Expect an increase in the frequency, magnitude and complexity of legal disputes over theft, hacking, malware, SIM swapping, keyloggers and other malicious activity around cryptocurrency.

The use of cryptocurrency in terrorism funding, dark market transactions and illicit drug sales will also spur investigations and legal matters, opening up an interesting and important new practice area for counsel.

As attorneys prepare to meet growing demand around cryptocurrency matters, they should closely watch the evolution of current and new cases. Blockchain and cryptocurrency experts can serve as a resource to help counsel understand the nuances of the changing regulatory landscape, and support legal teams as they begin to tackle the complicated work of tracing digital wallets, blockchain transactions and related illicit activity.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Steve McNew is a senior managing director within the technology practice of FTI Consulting and is based in Houston. He helps clients evaluate and implement blockchain solutions, and builds cost-effective and defensible strategies to manage data for complex legal and regulatory matters.