Civil Fraud Judges Struggle to Protect Crypto Investors Amid Weak Federal Oversight

Civil fraud judges across the United States are increasingly stepping in to freeze and recover stolen cryptocurrency, as federal enforcement of crypto-related crimes wanes. With regulators like the DOJ and CFTC scaling back their investigations, retail traders desperate to reclaim hacked tokens are looking to judges for protection.

According to a recent report, judges handling civil fraud cases are being asked to oversee more crypto recovery actions than ever. Attorneys often track suspicious blockchain transfers, but seizing and returning stolen digital assets remains a major challenge. Scott Armstrong, a former federal crypto prosecutor, noted that while lawyers can follow the money trail, “actually getting your hands on it and getting it back is an entirely different story.”

This shift comes as federal resources dry up. President Trump recently withdrew his nominee for CFTC Chair, leaving the Commission with just one sitting member. The rollback of federal crypto enforcement is forcing ordinary judges, with limited technical expertise, to take on cases that once fell under federal jurisdiction.

Yet, this trend exposes serious flaws. Judges trained in traditional law often lack the understanding of Web3 technology, making them vulnerable to manipulation. In one recent case, Hayden Davis, the promoter of the fraudulent LIBRA meme coin, persuaded a judge to unfreeze his crypto wallets. His attorneys argued that keeping tokens frozen would erode their value. The judge agreed, and Davis was soon accused of engaging in another scam.

These examples underscore the growing risks retail investors face. Hacks, rug pulls, and fraud schemes remain rampant, while private companies often refuse to support community-led investigations. Without stronger federal involvement or innovative recovery mechanisms, civil judges alone cannot safeguard crypto holders.

The current piecemeal approach highlights an urgent need for a more robust and coordinated system to combat digital asset fraud and ensure meaningful restitution for victims.