Pig Butchering Crypto Scam: Why is a cryptocurrency exchange requesting I deposit more tokens for taxes?
The latest crypto scam is being called “pig butchering” because it is a heavily scripted and contact intensive fraud meant to fatten the prey (or victim) before slaughter (or taking their money).
Emanating from Southeast Asia, the crypto investment scam typically starts with the fraudster making contact with the victim via social media, dating apps, or WhatsApp using a fake profile. They slowly build a relationship and rapport to earn the victim’s trust before casually mentioning they make significant amounts of money through cryptocurrency investments.
When the victim expresses interest in making an investment, the scammer will direct them to websites that appear to be legitimate cryptocurrency exchange platforms. In reality, the scammer exclusively controls the exchange.
The victim will usually go to a mainstream exchange like Coinbase, buy stable coins, and transfer a few small investments to the fake platform’s wallet. The scammer will then post modest gains and even allow the victim to withdraw small amounts of money once or twice as a way to build trust and prove the platform is legitimate.
Once convinced that the platform is legitimate and the gains are real, the victim will start making larger investments, sometimes in excess of hundreds of thousands of dollars. In many cases, victims get this money from personal loans, retirement assets, and home equity lines of credit.
When the victim eventually wants to withdraw the larger investments made, they are denied by the scammer. The fake platform will say the victim must pay a percentage (10-30%) of the requested amount in taxes before the withdrawal can be processed. This requirement is a lie. Even if the victim does pay the purported taxes, the scammer will continually deny the withdrawal of funds for one reason or another.
Eventually, the scammer vanishes, cuts off contact, and takes the victim’s invested money resulting in another successful pig butchering crypto scam.
How Kugelman Law Can Help a Pig Butchering Scam Victim
The tax and crypto attorneys at Kugelman Law can work with pig butchering scam victims for their tax reporting needs.
Contingency agreement to claim lost funds: Kugelman Law cannot pursue recovery of lost funds on a contingency basis, but you can hire our partnered crypto fraud attorneys (https://www.buzko.legal/practices-eng/crypto-fraud-investigations) on retainer to try to claim lost funds. It's important to note though that the chance of recovery in these situations is very slim.
Tax reporting theft loss: Kugelman Law crypto tax attorneys and accountants can help file a theft loss for the tax year that you lost your funds, which will help decrease your overall taxable income in the year you incurred the loss. This engagement would be on a flat fee basis and not contingency.
For tax reporting purposes, it may be possible to claim the stolen funds as a loss on the victim’s annual tax return if the victim thought it was a legitimate investment. It may be possible to report the investment as worthless - assuming it's fully un-recoverable and won't be reimbursed or covered by insurance, etc. - and take a loss on Schedule D. The capital loss would be the cost basis in the lost crypto assets.
Talk to a Kugelman Law crypto tax attorney for more information about tax reporting options available in your particular situation.
Civil Enforcement: Typically, we are not able to sue anyone involved in these types of investment fraud because most of the actors in these schemes are foreign. In order to attempt to recover the stolen funds, the scam should be reported to the victim’s bank, the Internet Crime Center (IC3), and local law enforcement.
It is important to have the following information available to provide:
- Last date funds were sent
- Last contact with scammer
- Has a report been filed?
- Platform/address where money was sent
- Total loss
- Documentation of correspondence, wire transfers, etc.