a case to learn from

Bitcoin investment fraud

23 / Nov

Spain’s Supreme Court ruling 2109/2019 upheld the Madrid Provincial Court ruling convicting a scammer for bitcoin investment fraud.

The scammer acted through a company of which he was the owner set up abroad. This so-called “financial broker”, who pretended to be a solvent person and an expert in the management of bitcoin investments, signed several contracts in which clients gave him money to invest in bitcoins or, on the contrary, handed over the management of bitcoins itself to him. In exchange for managing these contracts, which required him to reinvest any dividends and hand over the profits obtained at the expiry of the contract, he would retain a commission.

Initially, the scammer sent fortnightly reports to his clients until he suddenly stopped doing so. Following the demands of his clients, he introduced some new “partners” who indicated that he had family problems and was therefore unavailable. After that, the scammer and his companions were never heard from again. What this scammer concealed was his real aim, which was to not honour his commitment and enrich himself.

In its verdict, the Madrid Provincial Court found the accused guilty of fraud. This was confirmed by the Supreme Court on the grounds that fraud requires sufficient deceit on the part of the person committing the offence so that, due precisely to this misinformation and deceit, the person in question voluntarily performs an act of asset disposal that would not have been performed without the deception and which will logically cause him harm.

Such deceit, as some lawyers are unaware, even occurs in the form of a contract. The fact that a contract is signed does not automatically turn the matter in a civil jurisdiction issue.

The Supreme Court has held that fraud can arise in bilateral legal transactions, where the deceit lies in a contracting party’s use of false tricks and deceptive manipulations that lead the counterparty to believe in certain qualities of the contracting party which then lead to the belief that he will receive a benefit which ultimately turns out to be a farce.

This is a “textbook” case; a clear example for law students to take note of and learn about what scams are, not only because of the crime itself, but also because of the means used, bitcoin, a cryptocurrency that has great significance today.

Unfortunately, this case is not an isolated one. With the permission of the client, who allowed us to tell his story, a similar problem came to the Lex Foris office. The client in question trusted a person who persuaded him to sign a loan agreement for 20,000 euros, where the client is the financier and the persuasive counterparty is the debtor. The debtor promises him the return of his money after a year of investing in bitcoins. The loan will then be repaid with a substantial interest rate of 15%.

The debtor gives client the signed contract, asks him to deposit the money into an online bank account under an alias (@xxxx) and the moneylender confidently deposits the money into the masqueraded account. This way, the moneylender does not know the debtor’s account number. Finally, to reassure the lender, the debtor promises ( off-contract) that he will pay him 1,000 euros per month consisting of interest and instalment on the loan.

In addition, the scammer also operates the following trick to achieve his goal: in the unlikely event that any misfortune happens to him (the debtor), he gives client a telephone number of his associate, as well as his supposed “wallet” password in order to be able to access his money with the help of this associate. However, he claims to call his partner only if he should disappear, never before. The debtor explains that something similar happened to him personally, namely that a person to whom he had trusted a sum of money had died and he was never able to obtain his money back because he did not have his wallet access codes.

So, with the promise to pay back 1,000 euros a month, with the companion’s number in his pocket in case something serious happens and the supposed password of his wallet, the financier is satisfied and trusts in the good faith of the debtor.

With this trick set up, the debtor pays the client the agreed amount for the first two months, but then he suddenly disappears. He does not answer the phone, he does not respond to whatsapp…. The money lender, in despair over the situation, is convinced that the debtor may have had an accident or even be dead, as per the story the debtor told him at the time. So, still relying on the debtor’s good faith, he calls the number of the associate, who tells him via whatsapp that the borrower has family problems and is therefore unavailable. Subsequently, this associate blocks the phone of our client, the deceived money lender. Interesting coincidence with the sentence explained at the beginning of this article…

Evidently, this client has already filed the corresponding complaint and brought these facts to the attention of the judiciary. We hope the justice system will take uncompromising action against such fraudsters who abuse innocent people to get their hands on their money.

We therefore advise you to be very cautious and suspicious of these types of investment contracts. Especially if these are busines where there is seemingly easy money to be made; there may be a scammer hidden in the one who presents business optimistically to you.

Mª Dolores García Santos