Plaintiff Sues 3 John Does, Alleging Online Cryptocurrency Fraud

Three John Does defrauded plaintiff Phoebe Lee in a trading scheme linked to an online cryptocurrency website, Lee's fraud complaint alleged Friday (docket 2:23-cv-02008) in U.S. District Court for Western Washington in Seattle.

In January 2023, Doe 1, directly or through an alias, contacted Lee, a real estate agent and a Washington resident, saying he wanted to buy a home in Seattle, the complaint said. He represented himself as a successful cryptocurrency trader under the name Lin “Jack” Chao and “enticed” Lee to engage in cryptocurrency transactions, “promising” he could help her make money, the complaint said. Through texts and WhatsApp, Chao solicited Lee to trade at online cryptocurrency website U8, the complaint said.

On Jan. 14, Lee wired $1,000 to her Coinbase account at Chao’s urging, the complaint said. Chao instructed her how to convert cryptocurrency into U.S. dollars and use it to trade on the U8 platform, it said. Lee was able to transfer her $1,000 back into her bank account “without issue,” making the transactions appear “to be safe,” the complaint said.

Lee’s first deposit to U8 was a transfer of $1,082.36, which was placed in a wallet address provided on the website, the complaint said. The website showed a “profitable transaction” with an “increased portfolio balance,” leading Lee to believe U8 produced “an impressive return” on her investment, it said. Chao encouraged her to deposit more cryptocurrency with U8 to “generate more profits,” it said. From Jan. 14 to March 21, Lee made 12 deposits into her account with Coinbase “in reasonable reliance on representations made by Chao, in order to fund trades on U8,” it said.

On Feb. 23, Lee tried to make a withdrawal, but U8 didn’t process the transfer. The next day, U8 said she had to pay a 13.3% tax, $344,413, in order to withdraw funds, said the complaint. She wired $253,000 to U8 and Chao “lent” her $100,000, but she could still not withdraw the money, it said. On March 10, U8 allegedly told Lee she had to pay 2.5% in handling fees, $66,233, and she wired $55,000, plus $11,000 “lent by Chao.” U8 still didn’t allow her to withdraw the money, the complaint said.

On three other dates in March, U8 informed Lee she had to pay a 10% deposit of $264,933, a 1% risk security fee of $26,493 and a 0.5% risk protection fee of $13,246, said the complaint. Lee wired the amounts requested, but U8 did not allow her to withdraw funds, it said. After March 21, the U8 website was taken down, the complaint said. In total, Lee incurred damages of $551,424.31 through the loss of her cryptocurrency, it added.

Upon information and belief, the pattern of the transactions involving Lee’s assets “suggests a common scheme or ownership of one or more such addresses by at least three individuals, including Chao, Doe 1, and Does 2-3, the account holders or beneficial owners of the accounts where funds were transferred, and who acted in concert to scam Lee, the complaint said.

Lee asserts claims of fraudulent inducement, breach of fiduciary duty, fraudulent and negligent misrepresentation, rescission, conversion, civil conspiracy, unjust enrichment, imposition of constructive trust, violations of the Washington Unfair Business Practices and Consumer Protection acts and violation of the Commodity Exchange Act. She seeks an award for an amount to be determined at trial, including interest and costs, plus a statutory award of reasonable attorneys’ fees, it said.