The Fraud Examiner

Tracking the Intangible: How Fraud Examiners Are Busting Bitcoin Fraud

November 2013 

By Jacob Parks, J.D., CFE 


Due to its skyrocketing value over the past year (from around $10 per Bitcoin in November 2012 to over $900 per a year later), Bitcoin has been gaining popularity beyond just the tech community. Specifically, anti-fraud professionals are taking an interest in the digital currency. Bitcoin has been involved in a range of financial crimes, including theft, price manipulation, sale of illicit goods, money laundering and even Ponzi schemes.


Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others and confused the heck out of the rest of us, including me,” said Senator Tom Carper, chair of the Senate Homeland Security and Government Affairs Committee, during a meeting this November. Bitcoin is an online peer-to-peer currency that uses principles of cryptography to validate transactions between users. Much like trading in national currencies, a person can go online and exchange bitcoins for dollars, euros, and a host of other national currencies (and vice versa). One of the key features of Bitcoin is that it is decentralized, meaning individual users around the world running Bitcoin software on their digital devices form the backbone of the system. This trait has separated Bitcoin from some other virtual currencies — such as e-gold and Liberty Reserve — which operated through centralized servers and were shut down for violations of anti-money laundering regulations. To read more about the origins of Bitcoin, see this previous article from The Fraud Examiner. 


Bitcoin has often been called an "anonymous" currency, but recent criminal enforcement actions have shown that individuals who use the currency for fraudulent purposes are not as nameless as they might hope.


Online Persona 

Investigators do not always reveal criminals by looking at the books. Reflecting the online nature of the currency, the Bitcoin community is also active through social media, online forum posts, chat rooms and comment sections. For some reason, many cybercriminals have a tendency to discuss or brag about their methods in online settings.


The FBI recently busted the operator of the most popular online drug site, the Silk Road. This site was essentially the eBay of drugs and other illegal items, and only accepted payment in Bitcoins for the purpose of maintaining the anonymity of buyers and sellers. The investigation involved many sources that eventually led to the identification of the suspected operator, Ross Ulbricht. One of those sources, surprisingly enough, was the suspect's LinkedIn profile.

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