April 21, 2024
I lost $240K after a friend I met on Instagram encouraged me to invest in crypto

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Over the past six months, I was crypto scammed. I just retired and lost $243,000 that I don’t think I will ever see again. I have reported the company to the FBI, Federal Trade Commission, and a few others. Some of the money was from a SEP IRA. Is there something I can do at tax time so I don’t have to pay taxes on it?

When I first started “investing,” the person helping showed how easy it was to get money back out which we did. This operation got “interesting” when I was informed that if I put in a total of $150,000 I would start the VIP treatment and would get tax-avoidance help, among other things. The company will not allow me to withdraw the money I have put in.

I was helped by this individual to invest in crypto futures. The person “helped” me by adding $40,000 here and $40,000 there to boost my money-making ability. The last time I added another $100,000. It’s a long story but in a nutshell that is the “help” I received. I tried to pull money out and the crypto company said the government thinks that I am laundering money.

They now say I need to pony up $150,000 — 15% of my “profit” — to pay taxes. The company said this would be reimbursed so I would not lose any money.  I stopped right there and contacted the FBI and FTC. Now the crypto company is saying if I don’t pay the money soon my account will be frozen! I have not written back.

The website looked legitimate

​​I met this “friend” via Instagram
META,
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We switched from Instagram to Whatsapp, which I now see is also a no-no. I needed some photography help, and after a few weeks, the conversation turned to investing. Initially, the money went to what appeared to be a real site, and was sent to an external account called Cryptonex.com.

I should have done my homework as the real company is actually Cryptonex.org. The fake website looked legit to me. It also looked great on the phone which is where all the transactions were done. (On the computer, the header was all screwed up. (I have done HTML and SQL programming and that would have been a simple fix.) The rest of the page looked quite good.  

The company seems to have kept a very good track record of my installments. I still can’t be sure if it’s a scam or not. I have not yet received any communication from the FBI website for cybercrime. I filed a case for both elder fraud (I’m 62) and also for cybercrime. It is very unfortunate that these people prey on the older folks.

It’s not like we want to go back to work for minimum wage the rest of our lives just to put food on the table. I am especially upset as I think I am a pretty educated guy. My financial adviser said one of her clients lost $2.7 million in one of these types of scams. I’ve read that they can trace the wallets, and there are all sorts of “companies” that will help for a fee. 

What can I do now?

Scammed

Related: ‘I want to do what is right’: My father died without a will. His wife moved out of state — and left me paying the mortgage. 

“When you start to suspect that something may be wrong, you learn to suspend your disbelief. It’s a horrible cycle that goes against all logic.”


MarketWatch illustration

Dear Scammed,

Once a scammer has gained your confidence, it’s hard to break that trust. 

When you start to suspect that something may be wrong, you learn to suspend your disbelief. It’s a horrible cycle that goes against all logic and, in many cases, everything we have been taught to watch out for — strangers approaching us online, “too-good-to-be-true” offers and requests to throw good money after bad. When our confidence fails, fear and desperation take over. It can seem easier to keep the illusion alive than to admit to ourselves we’ve been had.

That’s likely why you are still unsure whether or not this is a scam, despite the fact the fake Cryptonex.com website no longer exists. A spokesperson for the real Cryptonex says it has issued an alert about situations such as this. That warning says: “Don’t rush — scammers often create an illusion of urgency. Verify the accuracy of the information provided to you. Do not share personal information. Cryptonex will never ask for payment or personal data.”

Such confidence tricks are known as “pig butchering.” It’s a nasty term for a nasty business. The scam artists scour social-media sites, public records and dating sites for marks. It’s called “pig butchering” because they take their time fattening up their marks, establishing trust and gradually feeding the victim information promising bigger and better returns. Slowly, the victim compromises their own instincts with the excitement of a big payday. And then they get bled dry.

“The scammer’s goal is not to request money from you, but to convince you to invest in a fake trading website or platform that will show you a bogus balance with lots of profit,” according to this warning from the Georgia Secretary of State. They allow you to withdraw profits early so you invest more. “They may even ‘lend’ you money so that you can make larger trades.” Imposter websites are one of the most popular methods. You can read more here.

Limitations on claiming a tax loss

It’s hard to claim a tax loss on such scams. The Tax Cuts and Jobs Act of 2017 limited individual casualty and theft deductions to federal disasters. There are exceptions for Ponzi-scheme scams, if the loss is considered a business-theft loss rather than a personal-theft loss; for that to happen, the scammer must be charged with theft, fraud or embezzlement, and the writeoff must be made in the same year as those charges are made. You can read more from the IRS here.

George Dimov, a New York-based CPA, says he receives roughly two requests a week from people who wish to take this kind of deduction. There may be some possibility — however slim — to write off such losses, he says. “Claiming a capital loss is the least risky, typically resulting in a relatively minor deduction of up to $3,000 per year as capital losses. Of course, this does not help victims much, especially in cases that we have seen where the victim has lost millions.”

The IRS Revenue Procedure 2009-9/20, or the Ponzi Scheme Safe Harbor, generates a greater deduction of up to 95%, Dimov adds, “yet it also comes with potential audit risks and IRS rejection. To determine qualification for Ponzi loss deductions, we must evaluate the client’s situation on a case-by-case basis. Before making any concrete tax-reporting decisions, it is also important to assess the taxpayer’s own risk tolerance for potential audits.”

He cites a “lack of clarity” on deducting such investment losses as one of several “loose ends” created with the Tax Cuts and Jobs Act of 2017. Although Dimov says he has successfully navigated numerous cases involving Ponzi-loss deductions, the interpretation of the IRS tax code on scams could help some victims but, as I noted above, not others. “I do not want to provide general tax advice as a blanket statement, one-size-fits-all strategy,” Dimov says. 

It sounds like a slim chance, at best. Please let me know if you have any success.

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter. 

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

‘Things have not been easy’: My sister is a hoarder and procrastinator. She is delaying probate of our parents’ estate. What can I do?

‘I gave up a job that I loved passionately’: My husband secretly set up a trust that includes our home and his investments. What should I do?

I have $1.5 million in stocks and bonds. I asked my broker to convert my bonds to cash. He didn’t and my portfolio fell by $100,000. Can I sue?

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