Over the past six months, I have been exposed to a cryptocurrency scam. I just retired and lost $243,000 that I don't think I'll ever see again. I have reported the company to the FBI, FTC 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 who helped me showed how easy it was to get the money back, which we did. This process became “interesting” when I was told that if I deposited a lump sum of $150,000, I would start being treated as VIP and would get help avoiding taxes, among other things. The company will not let me withdraw the money I put in.
This person helped me invest in cryptocurrency futures. This person “helped” me by adding $40,000 here and $40,000 there to boost my ability to make money. Last time I added another $100,000. It's a long story but in short this is the “help” I received. I tried to withdraw money and the cryptocurrency company said the government thinks I'm laundering money.
Now they say I need to come up with up to $150,000 – 15% of my “profit” – to pay taxes. The company said this amount would be reimbursed so I wouldn't lose any money. I stopped there and called the FBI and FTC. Now the cryptocurrency company is saying that if I don't pay the money soon my account will be frozen! I never wrote again.
The site looked legitimate
I met this “friend” via Instagram META,
We've moved from Instagram to Whatsapp, which I now see as a no-no as well. I needed some help with my photography, and after a few weeks, the talk turned to investing. Initially, the funds went to what appeared to be a real website, and were sent to an external account called Cryptonex.com.
I should have done my homework because the real company is actually Cryptonex.org. The fake site looked legitimate to me. It also looked great on the phone where all the transactions take place. (On the computer, the header was completely broken. (I did HTML and SQL programming and this would have been a simple fix.) The rest of the page looked pretty good.
The company seems to have kept a very good record of my premiums. I still can't be sure if it's a scam or not. I have yet to receive any communication from the FBI website regarding cyber crimes. I have filed a case for elder fraud (I am 62 years old) and also for cybercrime. It is unfortunate that these people prey on the elderly.
It's not like we want to go back to working for minimum wage for the rest of our lives just to put food on the table. I'm particularly upset because I think I'm a very educated man. My financial advisor said one of her clients lost $2.7 million to one of these types of scams. I've read that they can track portfolios, and there are all sorts of “companies” that will help you for a fee.
What can I do now?
Deceived
Related: “I want to do the right thing”: My father died intestate. His wife moved out of state – leaving me to pay the mortgage.
“When you begin to suspect that something might be wrong, you learn to suspend your disbelief. It is a terrible cycle that defies all logic.”
Market watch illustration
Dear trick
Once a scammer gains your trust, it is difficult to break that trust.
When you begin to suspect that something might be wrong, you learn to suspend your disbelief. It's a horrific cycle that goes against all logic and, in many cases, against everything we've been taught to be wary of — strangers approaching us online, “too good to be true” offers, and requests to throw good money after bad. When our confidence is weak, fear and despair take over. It may seem easier to keep the illusion alive than to admit to ourselves what happened to us.
This is probably why you are not sure whether this is a scam or not, despite the fact that the fake Cryptonex.com website no longer exists. A spokesperson for the real Cryptonex company says it has issued an alert about situations like this. This warning says: “Do not rush – scammers often create the illusion of urgency. Verify the accuracy of the information provided to you. Do not share personal information. Cryptonex will never ask for any money or personal data.
These confidence tricks are known as “pig slaughter.” It's a bad term for bad business. Scam artists scan social media sites, public records, and dating sites for signs. It's called “slaughtering pigs” because they take their time fattening up their marks, building trust, and gradually feeding the victim information promising bigger and better returns. Slowly, the victim surrenders his instincts to the thrill of the big payday. Then they bleed dry.
“The scammer's goal is not to ask you for money, but to convince you to invest in a fake trading site or platform that will show you a fake balance with a lot of profits,” according to this warning from the Georgia Secretary of State. They allow you to withdraw profits early so you can invest more. “They may loan you money so you can make bigger deals.” Scam websites are one of the most common ways. You can read more here.
Limitations on claiming tax loss
It is difficult to claim a tax loss on such frauds. The Tax Cuts and Jobs Act of 2017 limited federal disaster victim and theft deductions. There are exceptions to Ponzi scheme fraud, if the loss is considered a business theft loss rather than a personal theft loss; For this to happen, the fraudster must be charged with theft, fraud, or embezzlement, and the disbarment must occur in the same year those charges are made. You can read more from the IRS here.
George Demoff, a certified public accountant in New York, says he gets about two requests a week from people who want this kind of discount. He says there may be some possibility – however slim – of writing off such losses. “A capital loss claim is the least risky, typically resulting in a relatively minor deduction of up to $3,000 per year in capital losses. Of course, this doesn't help victims much, especially in the cases we've seen where the victim has lost millions.”
IRS Revenue Procedure 2009-9/20, or a safe Ponzi scheme, generates a larger deduction of up to 95%, Demoff adds, “yet it also comes with potential audit and IRS rejection risks. To determine qualifications for Ponzi loss deductions, We must evaluate a client's situation on a case-by-case basis.Before making any concrete decisions about tax reporting, it is also important to assess the taxpayer's risk tolerance for potential audits.
He points to the “lack of clarity” about deducting such investment losses as one of several “loose targets” created by the Tax Cuts and Jobs Act of 2017. Although Demoff says he has successfully side-stepped several issues involving loss deductions, Ponzi, an explanation of the IRS tax code for scams can help some victims, but, as I noted above, not others. “I don't want to offer general tax advice as a blanket statement and a one-size-fits-all strategy,” says Dimov.
It seems like a slim chance, at best. 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 that he cannot respond to questions individually.
Previous columns by Quentin Fottrell:
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I have $1.5 million in stocks and bonds. I have asked my broker to convert my bonds into cash. He didn't and my portfolio dropped by $100,000. Can I sue?
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