Crypto Crime Is Bad. Is Repayment Worse?

It’s rare for stolen or defrauded assets to increase in value before they’re returned to victims. But in crypto, those rare cases have been the norm. 

So it makes sense that the deputy attorney general, in a memo that was circulated by several crypto policy groups, said that the DOJ would dedicate resources to figuring out how to make sure victims benefit from the gains of digital assets that increased in price between the time of a crime and the time they were returned. 

The question is: in a world where forfeited assets see losses and gains, and certain assets cannot be recovered, how could the DOJ update its practices in a way that benefits victims all of the time? 

Should Victims of Crypto Fraud Get Repaid at Current Prices? DOJ to Investigate

The DOJ says it will reassess how it values the forfeited assets it returns to victims of crypto crimes. But there’s no easy solution. 

In a memo released last Monday, the DOJ said that it would reconsider the process by which investors in digital assets that become forfeited in fraud and theft cases are repaid to investors at a lower price than the current spot value. 

In the memo, the DOJ acknowledges the notable 2022 bankruptcy cases of FTX, Voyager Digital, Celsius Network, Genesis Global, BlockFi, and Gemini Trust. Not all of these bankruptcies included criminal charges. However, the DOJ points out that many involved the loss of digital assets due to “fraud and theft,” and also notes that the value of these assets dramatically increased in the ensuing years.

Take the FTX case, for example. When former CEO Sam Bankman-Fried declared bankruptcy on Nov. 11, 2022, one bitcoin was worth $17,500. Bitcoin subsequently increased sixfold to top $108,000 in January 2025. Creditors, of which over 300 have written letters to the federal judge handling the case, will get their money back in fiat, pegged to November 2022 prices. They do not get to share in these gargantuan gains.

However, it is not like the courts want to cause these creditors pain. The problem is that current bankruptcy regulations say that forfeited assets should be returned to victims at the dollar value they held at the time of the fraud. While this may seem unfair, experts say that this rule exists for an important reason. And it might be difficult to change. 

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Timing Is Everything 

Calvin Koo, a partner at the law firm Kobre and Kim who specializes in claim monetization, succinctly points out a key challenge with designing a system of payouts pegged to current prices — it essentially puts the court in the position of trying to time a market. 

“A process that is not anchored to a particular time may be perceived as procedurally ‘unfair’ because it may depend simply on luck of timing. Or worse, it might cause some victims or those advocating for them to try to influence the timing of distribution based on anticipated or hoped for market changes,” he explained. “Ultimately if policymakers create a process that both helps capture gains for victims and is seen to be procedurally ‘fair’ then I think many will be satisfied. But it may be easier said than done because of logistical challenges outside of the control of the parties involved.”

According to a lawyer who spoke with Unchained — who was granted anonymity because of their experience having worked in the very department at the DOJ that manages the disbursement of forfeited assets — the current regulations are designed to protect victims against asset losses, which victims risk much more often than they have a chance at gains. Typically assets, which could vary from a stolen yacht to piles of cash, are not fully recovered and lose value over the time between the fraud / theft occurrence and when victims are compensated. 

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Winners and Losers Either Way

Specifically, the DOJ in its memo references regulation 28 C.F.R. § 9.8(c), which states that financial losses returned to victims are to be valued at the fair market dollar rate as of the date it was lost, without interest or collateral expenses incurred. It also says that in the case of multiple victims, each receives a portion of the assets back on a pro rata basis — i.e., rather than each receiving the portion of the assets they personally lost, victims receive an equal share of the total sum of losses forfeited. 

In the case of a crypto exchange collapse, this may seem unfair, because it would mean that users who made smart investments would be compensated the same as those who made poor investments — for example, an investor whose losses amounted to 50% of the total, despite being one of 100 victims, would be owed 1% of the payouts. However, this standard has been established over decades of case law dealing with traditional assets, where the policy seems on average to be more fair. It ensures that “the last victims who invested in any particular fraud, for example, do not benefit from the recovery more than victims who invested earlier,” explains Evelyn Baltodano Sheehan, another partner at Kobre and Kim.

The “ruling official” — typically a judge — has some flexibility to tweak the portion each victim receives as compensation on a case-by-case basis based on the reliability of evidence establishing a loss, extreme financial hardship in the case of one victim or another, the victim’s cooperation with the federal government, and victims' petitions. In the FTX case, for example, the vast majority of victims received compensation almost 20% more than the value of the assets at the time of the crime, adjusted according to how much each victim held in the exchange. And in our example above, a victim with severely outsized losses would probably be granted more than their “pro rata” share by a judge. However, the regulation makes it so that in the average crypto crime case, without exceptions, each victim would receive an equal portion of assets forfeited as valued in fiat at the time of the crime. 

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Some victims of the FTX crash argued that the only fair compensation would be to return their assets in kind — i.e., in the cryptocurrency tokens that they had purchased on the exchange. As one victim, quoted in Axios, explained to the judge in the case, “I did not gamble with leverage trading or random meme/scam coins, I researched quality projects and made long term investments to try and change my life.” 

Returning Assets in Fiat or Crypto

However, setting a policy of returning assets in kind, particularly in crypto cases, also carries tremendous risk to victims. The vast majority of crypto tokens don’t just decrease in value over time — they go to zero. This is even more likely in the case of the frauds or thefts listed in the DOJ’s memo, which coincided with collapsing businesses. And while the crypto industry can be tightly correlated, meaning that many assets move in the same direction at the same time, there are divergences. This would mean that the opportune time to return one asset in a portfolio could differ from another. 

Plus, it could be difficult to make the math add up in a case such as FTX, which was hacked for $477 million in crypto in the days after its bankruptcy, if assets cannot be recovered. Perhaps other assets could be sold off to make up a difference, but this asset deficit would hurt the ability to provide in-kind redemptions.

Additionally, while the DOJ’s memo is addressing digital asset cases, the regulation referenced in the memo applies to all assets, including those which would cost the federal government money to maintain over the course of a trial, like forfeited cars or other non-financial property. “There are many hurdles and variables that may arise when trying to distribute in kind and even assuming there may be a way to do it, the process of doing it may incur additional time and taxpayer costs,” Koo explained.

Notably, the New York Attorney General made a different judgment when settling its case with Gemini Trust. In this settlement, victims did receive compensation in kind. However, the DOJ’s memo only covers cases where it handles asset recovery, not how states handle these cases. “This potential ‘fix’ by the DOJ memo would only fix how the DOJ handles asset recoveries for victims of crime,” explained Sheehan. “It does not speak to how a bankruptcy trustee would handle the issue and it certainly doesn’t speak to how each independent state AG’s office would handle the issue.”

In its memo, the DOJ did not make clear when it would offer “improvements” to this policy. Though it is Congress that has the power to amend statutes, the DOJ has some power to issue rules or regulations where it derives the authority from Congress. 

The memo “seems to invite Congress to specifically address the issue by potential changes to a statute, and the DOJ will have to issue regs or amend old regs to address the directive from Congress,” explained Sheehan. The DOJ did not respond to a request for comment asking for more detail as to how it may update its policies, or by when proposals to do so would be submitted. 

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