From detection to recovery: following the money and coordinating the cross-sector response crypto fraud demands

OK, we agree we are dealing with a crypto scam. Where to go next? As every case involves a person or institution absorbing a real loss, Scott Pounder reveals practical advice on how to follow the money and coordinate the cross-sector response crypto fraud demands.

Today we continue our series of articles that deep dive into the world of crypto scams by looking at what happens once a scam has succeeded: how the resulting fraud is detected in practice, how illicit funds are traced once they move on-chain, and what a coordinated response between exchanges, banks, regulators, and forensic investigators looks like in a real, time-pressured case. In case you missed the first part, you can check out Scott’s article here.

By the time a crypto scam is reported, the money may already be several transactions away from the victim. The case then comes down to three questions: how quickly the fraud is spotted, how far the money can be traced, and whether exchanges, banks, law enforcement, and courts can move in step before the funds are gone for good. Most reported cases fail on one of those three. This piece looks at what separates the ones that don't.

Detection is no longer a purely on-chain problem

On-chain analytics remain the starting point, but they are not proof on their own. Clustering techniques group addresses that appear, based on transaction patterns and other heuristics, to be controlled by the same entity, helping investigators build a picture of a wallet's history, exposure to sanctioned addresses, and links to previously identified scam infrastructure. Wallet risk-scoring, now embedded in many exchange compliance stacks, can flag incoming funds that have passed through mixers or darknet-linked services, but those scores still need to be supported by case-specific evidence before they are relied on in legal or recovery action.

But some of the most reliable signals are transactional and behavioural and sit squarely inside a bank's or PSP's existing monitoring remit. Structuring, breaking large transfers into smaller ones to stay under reporting thresholds, remains a classic red flag. So does rapid consolidation of funds from many small addresses into one, a pattern often seen when a scam operation collects proceeds from multiple victims. Sudden dormancy followed by a single large outbound transfer can also matter, particularly where stolen funds move only after the actor believes monitoring has lapsed. Equally important are behavioural indicators that predate any blockchain transaction at all: a login from an unfamiliar device immediately before a large crypto purchase, or a customer on a support call who appears to be repeating scripted language rather than explaining a transaction in their own words, a well-documented indicator of active romance or investment-scam coercion.

A real case shows how quickly the picture can change

The practical point is that detection works best when the blockchain trail is treated as one evidence stream, not the whole case. The most useful investigations test on-chain hypotheses against off-chain facts: device activity, account permissions, banking behaviour, exchange records, and the timing of human decisions.

A UK High Court matter reported by Thomson Reuters Regulatory Intelligence in January 2026, brought by a London hedge fund after approximately 1.9 million USDC was drained from its trading account, illustrates the point well. Blockchain forensics firm Token Recovery traced the stolen stablecoins to a single address, where they remained static for several days. That fact did not identify the perpetrator by itself, but it changed the working hypothesis: the funds were not behaving like a professional laundering operation already running assets through mixers and cross-chain swaps. The investigation therefore widened beyond the blockchain trail to internal access patterns, including an employee who had recently resigned and whose logs showed unusual interest in the affected wallets on the day of the theft. Forgotten HR monitoring software installed on his device following an earlier conduct issue turned out to hold the decisive evidence, recording him navigating directly to the relevant private keys before searching for wallet software, activity with no legitimate business explanation.

Following the money once it starts moving

Once stolen funds begin moving, speed is the priority. Proceeds may pass through a layering process: conversion between tokens, chain-hopping across multiple blockchains via bridges, and mixing services designed to obscure the trail. Recovery becomes more realistic when illicit funds touch a regulated, KYC-compliant exchange, because that is where a flagged deposit may be frozen and, where appropriate, disclosed to law enforcement or a civil claimant. But that outcome depends on the exchange's jurisdiction, internal policy, evidential threshold, and speed of escalation; tracing alone does not guarantee a freeze.

This is also where legal mechanisms become decisive. In the case above, the hedge fund's lawyers obtained a proprietary injunction over the stolen USDC, a worldwide freezing order over the former employee's assets, and a search and imaging order allowing his devices to be seized and imaged, all within two working days of instruction and without notice to preserve the element of surprise. Faced with a disclosure deadline that would have forced him to declare his assets to the court, the former employee agreed to a direct, peer-to-peer transfer of more than 1.5 million USDC, over 80% of the stolen value, back to the hedge fund. The entire process, from first instruction to recovered funds, took nine working days. The lesson is not that court orders alone recover crypto; it is that tracing, internal evidence, and urgent legal relief can create enough pressure, quickly enough, to make recovery possible.

Collaborative prevention across sectors

No single actor can address crypto fraud alone because each sees only part of the crime. Exchanges hold transaction and KYC data. Banks see the fiat side of a scam as funds move toward a crypto purchase. Law enforcement can act on cross-border referrals. Regulators set the compliance expectations that shape how quickly institutions respond. Forensic investigators provide the technical tracing that ties these pieces together into evidence a court will accept. Information-sharing between exchanges, and between exchanges and banks, has expanded, though inconsistent data-sharing frameworks across jurisdictions remain a persistent obstacle. Where it works best is when a forensic firm can present a well-documented address cluster directly to an exchange's compliance team, often resulting in a freeze before any formal legal order is available, and when banks build a clear internal escalation path for suspected crypto fraud rather than reviewing each transaction in isolation.

The victim is not a footnote

The technical and legal response often overshadows a simpler point: every case involves a person or institution absorbing a real loss, and how that party is treated can affect both the outcome and, for regulated firms, their own conduct exposure. Victims often move from disbelief to urgency once the fraud is recognised, then into sustained uncertainty while investigators, exchanges and lawyers work through an active case. Clear communication matters in that window. Institutions that explain what is known, what is still being tested, what can realistically be recovered and when escalation will occur tend to see better outcomes than those treating disclosure as a single transactional event.

What separates a recoverable case from a total loss

The case above recovered funds in nine working days. Many reported crypto fraud matters recover nothing. The difference rarely comes down to a single tool. Recoverable cases tend to combine on-chain analytics, transaction and behavioural monitoring, a clear escalation path between exchange, bank and legal counsel, and the willingness to move at the speed the underlying asset moves. The window is narrow; the response has to be narrower still.

About author

Scott Pounder is CEO of Token Recovery and a recognised expert in blockchain forensics and digital asset recovery, with over 20 years across UK law enforcement and the private sector. A member of the Oxford and Cambridge Blockchain Societies and ISSA, he has testified in nearly 100 legal proceedings and lectures at the University of Cambridge. He holds qualifications from Blockchain Council, Chainalysis, Crystal Intelligence, Interpol, Met Police, and Pearson.

 

 

About Token Recovery

 

Token Recovery is a blockchain forensics and crypto asset recovery firm headquartered in Zug, Switzerland. Its in-house team of investigators supports individuals, corporates, law firms, and financial institutions in tracing stolen digital assets and pursuing recovery through blockchain analysis, exchange engagement, and legal action worldwide. The firm's casework spans exchange hacks, insider theft and investment fraud, and has been reported by Thomson Reuters, the Financial Times, Fortune, and The Paypers.