Federal Cryptocurrency Forfeiture: What Pig-Butchering Scam Cases Reveal About Civil Asset Forfeiture
Cryptocurrency Scams Show Both the Power—and the Problems—of Federal Civil Forfeiture
Federal prosecutors are increasingly using civil asset forfeiture to seize cryptocurrency connected to online investment fraud, including the massive international schemes commonly known as “pig-butchering” scams.
A recent Lawfare analysis by Yotam Berger highlights both the extraordinary reach of federal forfeiture law and an equally important limitation: seizing money is not necessarily the same as returning it to the people who lost it.
That distinction matters not only to victims of cryptocurrency fraud, but to anyone whose money, cryptocurrency, bank account, or other property becomes caught up in a federal forfeiture investigation.
How Civil Forfeiture Is Being Used Against Cryptocurrency Scams
Pig-butchering schemes typically begin with an apparently innocent online contact through social media, a dating application, or a messaging service. The scammer develops a relationship with the victim and eventually recommends what appears to be a profitable cryptocurrency investment. The victim transfers increasingly large amounts of money or cryptocurrency while a fraudulent website displays fictitious investment gains. When the victim eventually attempts to withdraw the supposed profits, the money is gone.
According to Berger's review of federal court records, 81 civil forfeiture actions involving assets linked to these schemes had been filed by March 2026 in 33 federal judicial districts.
Federal civil forfeiture is particularly attractive to the government in these cases because it does not require prosecutors to first arrest or convict the people responsible for the fraud.
Instead, the government proceeds directly against the property itself.
That is why federal forfeiture cases have unusual names such as:
United States v. Approximately 500,000 USDT
or
United States v. Certain Funds Seized From a Cryptocurrency Wallet.
The legal theory is that the cryptocurrency constitutes proceeds of—or property traceable to—specified criminal activity.
The Government Can Forfeit Property Without Convicting Its Owner
Civil forfeiture is an in rem proceeding. Technically, the defendant is the property rather than the person who owns it. That distinction gives the government substantial power. A criminal conviction is generally unnecessary. Indeed, in many international cryptocurrency cases, prosecutors may never identify, arrest, or extradite the individuals who ultimately controlled the wallets. If the government can establish that particular cryptocurrency represents criminal proceeds or otherwise qualifies as forfeitable property, it may seek a federal seizure warrant and then file a civil forfeiture action. Anyone claiming an ownership or other legal interest in the property must affirmatively intervene and contest the forfeiture. And the deadlines can be extremely short. Failing to file the correct administrative claim or judicial claim on time can result in forfeiture without the court ever deciding whether the government's substantive allegations are correct.
Cryptocurrency Creates New Opportunities for Federal Seizures
The Lawfare study demonstrates an interesting feature of modern cryptocurrency forfeiture. Cryptocurrency is often described as decentralized and beyond government control. In practice, however, many cryptocurrency transactions involve centralized intermediaries.
Berger found that the government commonly obtained cryptocurrency through either:
Cryptocurrency exchanges, which froze accounts and transferred the assets pursuant to government requests and warrants; or
Stablecoin issuers, which may have the technical ability to freeze tokens and effectively recreate them in a government-controlled wallet.
In the cases Berger reviewed, exchanges were involved in 38 seizures, while stablecoin issuers were involved in another 31. That provides federal investigators with an enforcement tool that simply did not exist when most forfeiture statutes were written. But it also raises significant legal questions.
A federal court may issue a warrant, but many cryptocurrency exchanges and issuers are located outside the United States. The effectiveness of the seizure may therefore depend as much upon the voluntary cooperation of a private foreign company as upon the jurisdiction of the federal court itself.
Tracing Cryptocurrency Does Not Automatically Make It Forfeitable
Blockchain technology can allow investigators to trace transfers from one wallet to another. But tracing a transaction is not necessarily the same thing as proving forfeiture.
This becomes particularly important when funds have been:
transferred through numerous wallets;
pooled with cryptocurrency belonging to other people;
exchanged for different digital assets;
deposited into legitimate exchange accounts;
transferred through intermediary wallets; or
commingled with lawful funds.
Federal forfeiture statutes contain specific tracing and nexus requirements. The government still must establish the statutory basis for forfeiture. A blockchain-analysis report showing that cryptocurrency traveled through a particular wallet does not automatically establish that every asset later contained in that wallet is criminal proceeds. That distinction can become critically important for innocent owners, businesses, investors, and other third parties whose property becomes mixed into a transaction chain.
A Seizure Is Not the Same as Victim Compensation
Perhaps the most significant part of Berger's analysis concerns what happens after the government succeeds in seizing cryptocurrency.
The numbers demonstrate the problem. Of 51 completed civil forfeiture proceedings examined in the study, 42 resulted in the entire seized amount being forfeited to the United States.
Victims appeared directly in the forfeiture litigation in only eight cases. That does not necessarily mean the government ultimately keeps all of the money. The Department of Justice can return forfeited assets to victims through procedures known as remission or restoration. But those are separate processes.
A person who lost money in the underlying crime therefore cannot assume that a federal seizure means the money will automatically be returned. Victims may need to prove their losses, establish the connection between their money and the seized assets, satisfy DOJ remission requirements, and comply with separate procedural deadlines. For victims of international cryptocurrency scams, doing so can be extraordinarily difficult.
The Numbers Also Show the Limits of Forfeiture
Even when the government successfully traces and seizes cryptocurrency, the amount recovered may represent only a small percentage of the amount stolen.
The Lawfare study gives striking examples.
In one case involving more than $5 million in losses, the government seized less than $80,000.
In another involving at least $14 million in losses, authorities recovered less than $650,000.
Cryptocurrency can move through dozens of wallets in minutes. Funds can be divided, exchanged, commingled, transferred to unhosted wallets, or moved through jurisdictions beyond the government's practical reach. Consequently, a forfeiture case announced as a successful multimillion-dollar seizure may still represent only a fraction of what victims actually lost.
Forfeiture Proceedings Can Involve Competing Innocent Parties
These cases also reveal a broader problem with civil forfeiture.
The real dispute may not simply be between the government and a criminal defendant.
There may instead be multiple parties asserting legitimate interests in the same property:
fraud victims;
account holders;
businesses;
cryptocurrency exchanges;
investors;
secured creditors;
innocent owners; and
other third parties.
Some may have legitimate claims even though their property passed through a wallet that the government associates with criminal activity.
Federal forfeiture law provides procedures for asserting those interests, but those procedures are technical and unforgiving.
Determining whether to file a claim, pursue remission, challenge the government's tracing methodology, assert innocent ownership, or negotiate with prosecutors can require careful analysis of both the underlying transactions and federal forfeiture law.
Civil Forfeiture Is a Powerful Tool—but It Requires Scrutiny
There is an obvious public benefit when the government succeeds in taking millions of dollars away from organizations engaged in fraud, money laundering, human trafficking, or other criminal conduct.
But that does not eliminate the need for careful judicial scrutiny.
Civil forfeiture gives the federal government extraordinary authority to seize property without first obtaining a criminal conviction.
Cryptocurrency does not change the fundamental questions courts should ask:
What property is actually traceable to the alleged offense?
What legal authority makes that property forfeitable?
Who has a legitimate ownership interest in it?
Has the government satisfied the procedural requirements for seizure and forfeiture?
And where the property represents money stolen from victims:
Who should ultimately receive it?
The growth of cryptocurrency forfeiture makes those questions more important, not less.
Federal Asset Forfeiture Attorney
Federal forfeiture proceedings move quickly, and missing a claim deadline can result in permanent loss of property.
Jeffrey Zimmerman, PLLC represents individuals, businesses, property owners, and third parties in federal civil and criminal asset forfeiture matters nationwide, including cases involving cryptocurrency, bank accounts, money laundering allegations, fraud proceeds, and other seized assets.
If the federal government has seized your cryptocurrency or other property—or if you have received a notice of federal forfeiture—consulting experienced forfeiture counsel promptly can be critical to preserving your right to contest the government's claim.