Bitcoin ATM operator demands Texas sheriff return funds seized in ransomware scam

A Texas sheriff and a bitcoin ATM operator are locked in a fierce legal battle over the handling of a ransomware scam that victimized an elderly woman in late April.

When an 82-year-old Texas woman told the McLennan County sheriff’s office in late April she had been tricked into depositing $15,000 into a Bitcoin Depot machine at a fuel station, law enforcement secured a warrant and days later seized the money from the machine.

Before Bitcoin Depot was apprised of the status of the seized funds, the $15,000 was returned to the victim, according to a recent lawsuit against the sheriff.

While Sheriff Parnell McNamara maintains his department acted properly, Bitcoin Depot claims proper legal procedure was not followed and has filed a lawsuit in the 74th Judicial District Court of McLennan County seeking the return of the $15,000.

A hearing on the case has been scheduled at 1:30 p.m. on July 25 before Judge Gary Coley in the 74th District Court, according to a court spokesperson.

Sheriff defends actions

“It’s a bunch of hogwash,” McNamara said in a video interview posted on kwtx.com, which broke the story last week. “And as far as I’m concerned vultures that want to take the money back from this person that’s already been victimized…I think it’s a real travesty. The money does not belong to them. It was scammed, it still belonged to the lady that put it in there. And so, I think it’s preposterous that they filed this lawsuit.

“But it’ll be a cold day in hell they get this money back from our good citizen that’s already been scammed and traumatized.”

Asked about any further investigation in the case, McNamara said Bitcoin Depot will not work with law enforcement.

“They (Bitcoin Depot) have the ability to track down the scammer but apparently they are not cooperating with us. We believe the scammer’s in another country…I would like to say it’s still ongoing…But right now we don’t have that information.”

“We did everything right.” McNamara said in the video, noting the case is no different than how the department handles the recovery of other stolen property. “As soon as we possibly can, we return that to the victim.”

Lawsuit claims ‘unlawful taking’

Bitcoin Depot, in its lawsuit, argues proper procedure was not followed and the sheriff’s failure to compensate the company for the seized cash constitutes “unlawful taking.”

The affidavit for the search warrant, part of the lawsuit filing, recounts the chronology of the ransomware attack that led to the loss and recovery of the funds.

The victim was looking up recipes on her laptop and received an email with a link which, when clicked, activated a ransomware virus. She then contacted a “customer support” number and spoke to a representative who transferred her to a “customer service representative,” who transferred her to a “fraud investigator.”

The “fraud investigator” said a $15,000 check was written against her bank account that had not yet cleared her bank, and told her to withdraw $15,000 from her account to prevent the loss and deposit it at a bitcoin ATM. The “fraud investigator” guided her through the process.

After depositing the money in the Bitcoin Depot machine, the victim became suspicious and contacted the sheriff’s office.

“We immediately got on the case,” McNamara said in the video interview. “So May the second we had located this kiosk and we got a search warrant for this bitcoin machine.”

While the sheriff’s detective was at the machine, search warrant in hand, the armored car that services the machine showed up to get the money.

“So we served a search warrant on them (the armored car) and asked them to open up the machine for us…we were going to get in the machine one way or the other cause we had a legal search warrant,” McNamara said.

They retrieved the $15,000 from the machine and brought it back to the sheriff’s office, photographed it, and “put it in evidence and immediately got it back to the victim so she would not be further traumatized by these creeps,” he said.

Due process questioned

The Bitcoin Depot suit, reviewed by this website, claims property was disposed without process required under the Texas Code of Criminal Procedure, chapters 18, 47 and 59, which required the police to maintain custody until Bitcoin Depot received due process of cash ownership.

The suit claims schedule and inventory must be filed immediately and no later than three whole days after executing the warrant, which in this case was May 3, but Bitcoin Depot counsel did not receive return and inventory dated June 1 until June 6.

In addition, Article 10.10 of the code states the officer who seized the property return custody of it until the magistrate issues an order directing the manner of safekeeping the property, according to the complaint.

The affadavit for the search warrant dated May 3 said the affiant is authorized to search, seize and retain custody; however, seized property may also be transferred to the county district attorney and any other law enforcement agency as evidence in cases.

Victim ignored warnings

The suit also claims the victim ignored the company’s warnings against sending bitcoin to a bitcoin wallet that she did not control.

“After buying the bitcoin, the customer — contrary to our terms, conditions, and other warnings — instructed us to send bitcoin to a digital wallet that the customer did not control, in an apparent scam,” the company said in a statement sent to this website. “Unfortunately, like all financial institutions, Bitcoin Depot cannot prevent every instance of fraud that occurs using our services.”

In the customer account verification process, Bitcoin Depot states the warning: “If someone else sent you to this machine and provided you with a QR code or wallet ID to send funds to, it is most likely a scam.”

When Bitcoin Depot’s attorney asked the sheriff’s detective in the case about how to proceed to obtain return of the cash, according to the filing, the detective said the assistant district attorney would answer the questions.

When the company’s attorney spoke to Gabe Price, the McLennan County assistant district attorney, on May 12, Price advised him he had no extensive knowledge of the warrant or seizure and it was a matter to take up with the sheriff.

Price also said during the May 12 conversation with Bitcoin Depot’s attorney that Texas law allows law enforcement to seize and forfeit stolen property.

Bitcoin Depot also disputes the sheriff’s assertion that it will not cooperate with law enforcement in catching the scammers.

“After learning of this scam, we pledged to cooperate in any way possible to assist law enforcement in catching the bad actor and recovering the bitcoin,” the company said in its statement to this website.

Neither the sheriff’s office nor the district attorney’s office responded to emailed questions from this website at the time of this report.