DOJ Plans to Reassess Compensation for Crypto Crime Victims

The DOJ is reassessing victim compensation processes for crypto crime, acknowledging significant losses from high-profile bankruptcies. Current laws require compensation based on asset values at the time of loss, leaving victims without benefits from future market gains. Legal experts raise concerns about fairness and timing. The DOJ’s proposal emphasizes legislative changes but lacks a clear timeline for implementation.

The Department of Justice (DOJ) is reconsidering its processes for compensating victims of crypto crime, as outlined in a recent memo. The DOJ addresses the impact of high-profile bankruptcy cases involving companies like FTX, Voyager, and Celsius, many of which resulted from fraud and theft, leading to substantial losses for investors in digital assets.

The memo highlights that when FTX’s former CEO Sam Bankman-Fried declared bankruptcy in November 2022, Bitcoin valued at $17,500 skyrocketed to over $108,000 by January 2025. However, creditors will only receive compensation based on its value at the time of the bankruptcy, leaving them excluded from future market gains. Current regulations mandate that forfeited assets are returned at their value during the fraud, which some experts argue is necessary to protect victims.

Calvin Koo, a legal expert from Kobre and Kim, raises concerns about tying compensation to current asset prices, as this could lead to inequitable outcomes based on market timing. Policymakers face challenges in establishing a fair process that provides adequate compensation without introducing procedural unfairness. Legal frameworks typically prioritise the protection of victims against asset depreciation over possible gains from market fluctuations.

The DOJ cites regulations (28 C.F.R. § 9.8(c)) specifying that compensation is calculated at the market value when losses occurred, distributed pro rata among victims. This system can disadvantage those who made prudent investments by treating all victims the same, but it stabilises compensation consistency across asset types.

Judges can exercise discretion to adjust compensation for individual victims based on various factors, such as evidence reliability and victim cooperation. In some cases, this discretion may result in better-than-average compensation outcomes, but the default regulation typically applies an equal distribution formula, which can seem unjust, particularly in the cryptocurrency environment.

Some FTX victims advocate for receiving their compensation in the form of the original cryptocurrency rather than fiat currency. However, this approach can introduce risks, as many crypto assets can lose value—potentially to zero—over time and necessitate complex calculations to determine asset distribution, further complicated by the need to account for unrecuperated stolen assets.

The DOJ’s memo notes challenges in managing asset recovery beyond cryptocurrencies, as it encompasses a range of forfeited goods requiring maintenance costs. Previous cases, like the settlement with Gemini Trust by the New York Attorney General, illustrate different approaches to compensation, indicating that state-level responses may vary significantly.

Though the DOJ has not provided a timeline for revising its compensation policies, it suggests a willingness for legislative changes through Congress, which has the authority to amend relevant statutes. However, until such updates are specified, the current compensation structure remains in place, continuing to apply to all asset recovery scenarios handled by the DOJ.