Malecki Law regularly receives calls from people distraught by having funds stolen from their cryptocurrency (“crypto”) accounts. Unfortunately, the scant regulation in the crypto space has yet to be fully tested. In fact, according to Reuters, “[the] illicit use of cryptocurrencies hit a record $20.1 billion last year…” However, if you lost money in your Coinbase account, you may have an avenue to recoup those funds. If funds were stolen from your crypto account, you need to contact a Crypto-Based Theft law firm in New York, like Malecki Law, to review your potential claim.
Interestingly, Coinbase markets itself as safe to customers by representing that it takes “extensive security measures” to ensure investors’ crypto investments are “safe.” Notwithstanding the supposed safety and security measures it has in place, Coinbase is reportedly prone to scams and hacks, which can result in theft from customers’ accounts. Crypto investors who have had funds stolen from their accounts often find themselves left with no way to get their funds returned to them, but there might be recourse. In January 2023, Coinbase settled with New York State’s Department of Financial Services (“DFS”) for $100 million due to cybersecurity, anti-money laundering (“AML”), and compliance-related issues. Specifically, Coinbase was ordered to pay $50 million in civil monetary penalties, and an additional $50 million “on further improvements and enhancements to its compliance program.” See In the Matter of Coinbase, Inc.
What is the relevant law providing for recourse? The Electronic Funds Transfer Act (“EFTA”) is a possible way to get your funds back.
What is the EFTA? The EFTA was passed in 1978 with a mission to protect consumers from unauthorized electronic funds transfer (“EFT”) transactions, as electronic banking was on an incline at the time. The EFTA typically covers EFTs including transfers made by debit cards, through direct deposit, through ATM machines, and over the telephone. If you are curious whether the funds transferred out of your account fit the description of EFT under the EFTA, you should reach out to a New York Crypto-Based Theft Attorney, like the attorneys at Malecki Law, who are happy to analyze the authorized transfers.
But does the EFTA cover crypto transfers?
Whether the crypto platform is a financial institution
A threshold issue to have a viable claim under the EFTA is that the crypto platform you are using must qualify as a “financial institution” as defined under the statute. Under the EFTA, a “financial institution” is defined as “[a] State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer.” If it is determined that the crypto platform is likely a financial institution by definition, then EFTA might apply and you may have a claim to recoup your stolen funds. You may need a New York Crypto-Based Theft lawyer well-versed in this space, like the lawyers at Malecki Law, to conduct a legal analysis of the crypto platform you invested through to determine whether it can be considered a financial institution under the EFTA.
In February 2023, the SDNY held that a crypto platform, Uphold, fit the definition of a financial institution under the EFTA, because of the platform’s characteristics, including but not limited to, (1) holding accounts belonging to a consumer, because it “maintains consumer accounts which enable its users ‘to transfer, purchase, trade, hold, and sell various cryptocurrencies on its platform;’” and (2) engaging in electronic fund transfers “because Uphold’s electronic transfers of cryptocurrencies ‘debit or credit a [user’s] account.’” See Rider v. Uphold HQ Inc., No. 22cv1602 (DLC), 2023 U.S. Dist. LEXIS 29617 (S.D.N.Y. Feb. 22, 2023).
What to do if there is an error in EFT
If the crypto platform is considered a financial institution, the analysis under the EFTA continues. The EFTA indicates that consumer victims of unauthorized transfers must make their financial institution aware of such unauthorized transfers, within sixty days after a consumer notice identifying electronic transfers was transmitted. If the consumer identifies an error and makes their financial institution aware of such an error, the financial institution must determine whether an error has actually occurred and then must notify the consumer of their findings within ten days. If the financial institution determines that there was an error in electronic transfers, the financial institution must remediate the issue or credit your account. However, if there was an error and your financial institution failed to fix it (by way of crediting your account for example), you may have a claim to retrieve the funds wrongfully transferred out of your account. Notably, under the EFTA, if certain additional elements are met, treble damages can even apply. If crypto funds were transferred out of your account without your consent and your firm failed to remediate those transfers, you need a Crypto-Based Theft law firm in New York, like Malecki Law, to review your crypto portfolio and related account documents.
Contributions by Jacqueline N. Candella, Associate at Malecki Law