They Lost Their Money to Scammers—and Now Battle the U.S. Government to Recover It

Victims who lost money in cryptocurrency investment scams, including a $225 million scheme known as "Operation Big Tuna" where the U.S. government seized crypto assets, are now struggling to recover their funds. Despite the government's efforts to intercede, the process of returning the stolen money has proven challenging. This situation is compounded by additional financial burdens, such as the IRS demanding taxes on funds victims withdrew from retirement accounts to cover scam losses, and disallowing theft loss deductions.

Adding to the trauma, some scam victims have faced significant tax bills from the IRS. For example, a Silicon Valley couple, George and Julie Fry, initially faced a tax debt after losing over $950,000 to a fictitious cryptocurrency platform. Similarly, a New York couple, Brian and Lucy Leidy, initially had their $965,000 theft loss deduction disallowed by the IRS after Lucy was a victim of a "pig butchering" scam involving her IRA funds, along with almost $67,000 in penalties.

However, there have been some recent reversals. The IRS wiped out the tax debt and penalties for George and Julie Fry after a Bloomberg Law inquiry. Similarly, the IRS reached an agreement with Brian and Lucy Leidy, dropping its determination that they owed taxes or penalties related to their 2022 theft loss deduction. These cases highlight the complex and often distressing aftermath for scam victims, who not only lose their savings but also sometimes face further financial penalties from the government.

Overall, the U.S. government's ability to tackle the rising tide of scams, which generated $15.9 billion in reported losses in the last year (likely an undercount, with actual losses estimated near $200 billion in 2024), is lagging. While efforts like the Justice Department's Scam Center Strike Force have restrained $832 million in cryptocurrency from transnational criminals, specifics on fund returns to victims remain elusive. The lack of robust systems for restitution, coupled with the complexities of tracing and recovering cryptocurrency across borders, leaves many victims with little recourse.