When it comes to the growing trend of cryptocurrency fraud, U.S. Secret Service Special Agent in Charge Shawn Bradstreet is at the forefront of the enforcement battle. According to the Center for Homeland Defense and Security alum (Master’s Program cohort 1803/1804), the San Francisco field office has seen an explosion in cryptocurrency scams that has led to the seizure of more cryptocurrency than traditional “fiat” currency over the past five years. It’s a trend he said has been seen all along the West Coast from Seattle and Denver to San Diego, and cryptocurrency fraud complaints now exceed traditional financial fraud complaints. In just the past year, he said, incidents of a specific kind of cryptocurrency scam called “pig butchering” has tripled.
“It’s running rampant,” Bradstreet said.
Over nearly a decade, Bradstreet said he has seen the cryptocurrency fraud landscape grow exponentially from relatively humble beginnings to the behemoth it is today, and law enforcement officials have been working hard to keep up with the trend by enlisting the help of private sector and academia.
In 2014, Bradstreet was the supervisor over the U.S. Secret Service San Francisco field office’s Electronic Crimes Task Force, which is now called the Cyber Fraud Task Force, when the task force began receiving periodic complaints about criminals stealing bitcoin from victims throughout the Bay Area.
Since the task force was “completely unfamiliar” with cryptocurrency and the functionality of blockchain technology, Bradstreet said it turned to the private sector and academia for guidance and training.
Bradstreet said the task force reached out to the Director of Investigations at Coinbase, the cryptocurrency exchange then headquartered about a mile from the San Francisco Field Office, and the company was “really instrumental in training our agents and providing guidance to start pursuing cryptocurrency investigations.”
He said the task force also “relied heavily on our academia partners to trace bitcoin manually for us,” citing specifically the University of California, Berkeley Computer Science Department, adding that the university partners “actually directed our initial investigations involving cryptocurrency.”
“What’s interesting is the vital role our private sector and academia partners play,” Bradstreet said. “We’re criminal investigators, not computer scientists or cryptologists. We need to learn from the experts.”
Bradstreet said there were a lot of “growing pains” for the U.S. Secret Service and the task force in the early years in dealing with several challenges such as how to seize and log evidence that is actually virtual without any policies or procedures in place to handle a virtual currency that you could not physically possess.
As cryptocurrency fraud calls continued to increase, Bradstreet said he assigned a full-time agent to cryptocurrency crimes, and in 2015, the task force made its first seizure of a digital asset in San Francisco—1,000 bitcoin. At the time, the asset was worth around $420,000. Today, it would be worth around $20 million.
By comparison, this summer, agents seized $1.4 million in cryptocurrency related to a single pig butchering case and several million have been frozen pending judicial process.
Earlier this year, Bradstreet said, the San Francisco field office created the first Digital Asset Technology Alliance consisting of local, State, and federal law enforcement along with the private sector and academia to “combat the increasing threat to the digital asset ecosystem.”
“Our private sector and academia partners are instrumental as the technology continues to evolve into the DeFi [decentralized finance] space,” he said.
Bradstreet said he has recently seen the pig butchering scam emerging as a top threat in the Bay Area, where the majority of global cases are located, and the scam has hit the local Asian American community particularly hard.
In the past year, high-profile pig butchering cases that drew media attention included a Bay Area software developer losing $1.3 million and a San Francisco man with a financial and accounting background losing $1.2 million.
The pig butchering scam started in China in 2019 but has now become more prevalent in California. It typically involves two people who meet on a dating website or social media platform and develop a relationship built on false trust. After some time spent on building the relationship, the scammer will bring up a cryptocurrency investment, helping the victim set up a crypto-account and prompt them to start sending relatively small amounts of money to start with the promise of major investment returns. Typically, the scammer will show the victim returns on the initial investment, which helps further build trust. Victims then deliver larger sums of money, sometimes including retirement savings, college funds, and even loans, in the hopes of even larger returns, which is known as “fattening the pig.” The scammer then takes the money, leaving the victim with nothing to show for their “investment,” thus the term “pig butchering.”
Other common cryptocurrency scams include phishing, false romance, rug pulls, and Ponzi, among others (left).
Bradstreet said cryptocurrency scams and other virtual currency fraud are an important homeland security issue, especially because he predicted that the U.S. and the rest of the global financial markets will continue to transition to a digital currency of some type.
While cryptocurrency presents enforcement challenges, Bradstreet said it is “not bad on its face” and plays an “important role in finance,” offering myriad benefits including reaching the unbanked, quicker currency movement, operating around the clock, cheaper transaction fees, and others. He said he kind of agreed that cryptocurrency represents the “democratization” of finance and compared the still-emerging technology to the advent and evolution of the Internet and related platforms such as Facebook.
While cryptocurrency is in the midst of what Bradstreet called a “Crypto Winter,” which has seen digital currencies dip precipitously in value, he said he believes banks will gradually move toward a digital based currency in the future.
Meanwhile, Bradstreet said his experience in the CHDS Master’s Program helped him deal with cryptocurrency issues because of the focus on analyzing issues objectively, conducting academic research, and promoting innovation and “pushing the envelope.” If not for CHDS, he said he probably wouldn’t have pushed the San Francisco Field Office as aggressively in the fight against cryptocurrency.