New program giving LPS more ability to investigate crypto scams

By Al Beeber - Lethbridge Herald on August 4, 2023.

Herald photo by Al Beeber LPS Sgt. Kevin Talbot of the Economic Crimes Unit meets with reporters to discuss new technology and training for investigating crypto crime.

LETHBRIDGE HERALDabeeber@lethbridgeherald.com

Crypto scammers beware. Lethbridge police now have the technology and training to help victims get their money back.

The LPS is now utilizing a specialized software program called Chainalysis Reactor which tracks cryptocurrency from point of origin until it’s been deposited in an exchange.

Sergeant Kevin Talbot of the Economic Crimes Unit is the officer trained and certified as a blockchain analysis investigator and he says its unusual for a smaller force like LPS to have access to the program.

While the police would like ideally to prosecute scammers, their top priority is to retrieve the money of victims, Talbot said.

Blockchain analysis, says the LPS, “refers to the process of examining and interpreting data on a blockchain to track transactions and ultimately identify the exchange where the cryptocurrency has been deposited. Once the trace identifies the exchange, police can seek judicial authorization to obtain the account holder’s information and transaction data to see where the cryptocurrency was sent beyond the exchange.”

A blockchain is a public decentralized ledger that records all the crypto transactions across a network of computers.

It “operates through a series of blocks, where each block contains a list of transactions. These blocks are linked together in chronological order, forming a chain,” says the LPS.

Canadians in 2022 reported losses of more than $300 million to investment fraud compared to $164 million the year previous. The majority involved crypto after a potential investor saw an advertisement and was lured into investing.

Police now have the ability trace transactions, identify suspects and determine where funds have been deposited, Talbot said.

LPS and other agencies across Canada used to run into a roadblock once they determined a fraud had occurred using crypto, Talbot said.

“We’ll get to the point where we have a transaction data but we’re unable to trace it because it requires special programming to do these things and training. In Canada, we’re making headway, Talbot said, using Chainanalysis.

The evolution of investigating crypto fraud has gone from police telling victims they can’t do anything to the Calgary Police Service doing some of that training for LPS and now “we have our own training and programming to do it ourselves,” said Talbot.

Tracing using the Reactor program allows LPS to input data and then begin tracing from the point the victim deposited funds into a wallet address to what exchange it ends up at, said Talbot, explaining an exchange is similar to a bank.

Then police will obtain judicial authorization to obtain information from that exchange about who the account holder is, if there are funds remaining that can be possibly seized, and if there are any transactions out of the exchange,” he said.

Police are seeing trends specifically involving crypto investment scams, he said.

“There are legitimate companies out there that do invest in cryptocurrency,”however there are hundreds of scammers portraying themselves to be legitimate organizations which will invest crypto on investors behalf, he said.

But they’re taking that currency and keeping it for themselves, costing people their entire investments, the sergeant added.

A typical scam involves someone looking to invest but doesn’t know much about crypto so they seek out a website or someone reaches out to them through social media, he said.

Eventually, a person invests in crypto with the scammer’s help. Sometimes romance scams will evolve into a crypto scam, he added. Once a scammer gains a person’s trust and the decision has been made to invest, the scammer will help a person in opening an account with a reputable exchange. Then the scammer asks the investor to purchase a type of crypto such as bitcoin or ether and transfer it to a wallet address that the scammer provides.

The scammer will then give victims fictitious statements showing their investment is growing and sometimes will even allow victims to withdraw a bit to keep them committed.

“But once that is done, you lose all contact with them, you obviously cannot withdraw any of your assets and you’re out your complete investment. That’s where we come in. We will begin to identify what wallet address did you send it to. That information will be given to me, I will use the Chainanalysis Reactor program to do the trace to an exchange. That information is then shared with an investigator who will then write a production order to obtain the information about the account holder, whether there’s funds in the account and where the funds may have been transferred out to,” added Talbot.

“When people invest in these types of these scams, the information they’re given is there’s no risk whatsoever, you can make huge returns on your investment. They make you feel like you’re missing out on something if you don’t invest and you invest now and invest as much as you possibly can.”

They will also post their own reviews online to further deceive investors.

“The No. 1 key to investing, not only cryptocurrency but any firm, is to utilize the things we have in place in Canada to look at that and ensure that we’re investing in things that are appropriate and that they’re registered firms in Canada,” said Talbot.

If companies aren’t registered in Canada, people shouldn’t invest in them and take a massive risk doing so, he said.

Red flags and tips when investing in crypto, says the LPS, include:

• If it sounds too good to be true, it is.

• Fraudsters will offer investment opportunities with higher than normal or true monetary returns.

• Fraudsters often use high-pressure tactics to get consumers to hand over their money quickly. Do not “act now”.

• Be aware that once a cryptocurrency transaction is completed it is unlikely it can be reversed.

• Be skeptical when someone insists you don’t discuss the potential investment with others.

• Be wary if a “friend” tells you about a cryptocurrency investment opportunity via social media or email. The friend could be a fraudster who has either hacked or spoofed one of your contacts’ accounts.

• Be cautious if someone on a dating site or social media platform encourages you to invest and vouches for the company’s safety or says they’re investing with them, too.

• Verify if the investment company is on the Canadian Securities Administrators’ National Registration Search Tool.

Check to see if a person or company has been flagged as a risk to investors on the • Investment Industry Regulatory Organization of Canada website and with provincial regulators.

Canadian Securities Administrators – http://www.securities-administrators.ca – is an organization formed by securities regulators in all the provinces and territories which protects Canadian investors “from unfair, improper or fraudulent practices and fosters fair and efficient capital markets.”

The Alberta Securities Commission – http://www.asc.ca – is this province’s regulatory agency responsible for administering Alberta’s security laws while the Investment Industry Regulatory Organization of Canada – http://www.iiroc.ca – is the pan-Canadian self-regulatory organization that oversees all investment dealers and trading activity on the country’s debt and equity marketplaces.

“We’re at the early stages, we just started using this a few months so I’m beginning to do tracing myself. As far as success leading to an exchange, I’ve had a 100 per cent success doing that. But beyond that and prosecuting anyone or seizing funds,we’ve seized funds once so far here at the service but we expect we’ll have more success in that in the future,” said Talbot.

“The focus when we do these investigations is two-fold. One we’d love to prosecute someone but often though individuals involved in this are out of country which makes it a little more difficult to prosecute, but not always – there are occasions where they’re local or at least in North America.

“However, our priority is to find out where the funds went and seize them and return all or a portion of those funds back to our victims. That’s our ultimate goal,” added the sergeant.

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