Dear Attorney,

I invested in a trading platform promising high returns on cryptocurrency investments, but it now appears to be a scam. They promised guaranteed returns, and now I cannot withdraw my funds. I would like to know my legal options and how to pursue a claim against the operators of this platform.

Sincerely,
Concerned Investor

Insights

In the Philippines, scams involving cryptocurrency, such as fraudulent trading platforms, fall under multiple legal frameworks designed to protect investors and penalize those engaging in illegal financial activities. The relevant laws include the Securities Regulation Code (Republic Act No. 8799), the Revised Penal Code on estafa or fraud, and the Anti-Cybercrime Law (Republic Act No. 10175). Below is an exhaustive discussion of the legal concepts relevant to these types of scams, possible legal remedies, and enforcement procedures under Philippine law.

Securities Regulation and Fraud

In the context of cryptocurrency or trading platforms promising returns on investments, the Securities and Exchange Commission (SEC) is the primary government body responsible for regulating these activities. The SEC monitors financial schemes that involve the sale of investment contracts.

What is an Investment Contract?
An investment contract, as defined under the Securities Regulation Code, involves:

An investment of money,
A common enterprise,
A promise of profits primarily from the efforts of others.

Cryptocurrency platforms promising returns likely fall under the definition of an investment contract. Companies offering such contracts must first register these securities with the SEC. Unregistered investment schemes violate the Securities Regulation Code and may be subject to penalties.

Estafa (Swindling) Under the Revised Penal Code

Estafa is a form of fraud punishable under Articles 315 to 318 of the Revised Penal Code. It includes deceit and abuse of confidence to the detriment of others. In cases involving online cryptocurrency scams, estafa may be committed in the following ways:

Through false pretenses: When a person falsely represents themselves or their business to obtain money from investors.
Misrepresentation of services: The scammer promises services or returns that never materialize, or the representations are made without the intention of fulfilling them.

Victims of estafa can file a criminal complaint with the local police or the National Bureau of Investigation (NBI). The complaint can be pursued alongside civil actions to recover damages.

Cybercrime Law (Republic Act No. 10175)

Since cryptocurrency scams often involve the use of the internet, they may also be prosecuted under the Anti-Cybercrime Law. The relevant provisions of the law cover:

Online fraud: This includes the manipulation of digital data, such as online accounts or websites, to commit deceit.
Computer-related fraud: The unauthorized use of any computer system to commit fraud can be punished under the Anti-Cybercrime Law.

Penalties for cybercrime-related offenses are severe, with imprisonment and fines that can extend significantly compared to traditional forms of fraud.

Legal Remedies for Victims

Victims of cryptocurrency scams can pursue multiple legal remedies under Philippine law. These remedies may be pursued simultaneously or individually, depending on the circumstances of the case.

Criminal Complaints:
Victims can file a criminal complaint for estafa, which carries significant penalties including imprisonment. Estafa under fraud carries different levels of punishment, depending on the amount of money involved.
Civil Action for Damages:
Victims may file a civil case for damages to recover their lost investments. Under Philippine law, you may claim both actual and moral damages. If the scam caused emotional or psychological distress, you may claim moral damages alongside actual damages for financial loss.
Administrative Complaints:
Victims can report the fraudulent entity to the SEC for operating without proper registration. If the platform is based abroad, the SEC may work with foreign counterparts, although enforcement can become more challenging in international scenarios.

Enforcement Challenges with Cryptocurrency Scams

One of the key challenges in prosecuting cryptocurrency scams is the often anonymous and decentralized nature of blockchain technology. Scammers may operate under false identities or from jurisdictions that do not have strong regulatory frameworks for cryptocurrency.

To address these challenges, the Philippine government has been strengthening cooperation with international organizations and regulators to combat cross-border financial crimes. Additionally, platforms offering cryptocurrency investments are required by the Bangko Sentral ng Pilipinas (BSP) to register as a virtual asset service provider (VASP) under the BSP Circular No. 1108, which mandates compliance with Anti-Money Laundering (AML) regulations.

Red Flags of Cryptocurrency Scams

To help individuals avoid falling victim to such schemes, it’s essential to be aware of common red flags. These include:

Guaranteed high returns: Legitimate investments never guarantee profits, especially with highly volatile assets like cryptocurrency.
Lack of transparency: Scams often involve complex terms or hidden fees that prevent investors from understanding how their money is used.
Unregistered entities: Platforms that do not have SEC registration or BSP accreditation as VASPs should be avoided.

How to Report a Cryptocurrency Scam in the Philippines

If you believe you have been scammed, follow these steps:

Document Everything: Keep all correspondence, transaction records, screenshots, and communications related to the scam.
File a Report with the SEC: The SEC has a dedicated department handling investment scams.
Report to the NBI or Police: For criminal prosecution under estafa or cybercrime laws, file a complaint with law enforcement.
Seek Legal Counsel: A lawyer can assist in navigating both criminal and civil cases, ensuring the best legal strategy for your case.

Conclusion

Cryptocurrency scams remain a significant risk to Filipino investors, with perpetrators exploiting the relatively unregulated space. Fortunately, Philippine law offers multiple avenues for redress, from criminal prosecutions under estafa laws to civil actions and administrative penalties imposed by the SEC. Being vigilant and well-informed is crucial in protecting oneself from such fraudulent schemes.

For individuals already victimized, immediate action through legal channels is essential. The sooner the scam is reported, the better the chances of recovering funds and preventing the further spread of such fraudulent activities.