Keith Kaiser was new to Bitcoin. Though he had invested in gold and other precious metals previously, this new digital gold was something that wasn't immediately easy to wrap his mind around. He didn't know how mining worked and, like many of us, he had no great understanding of cryptography. What he did have, though, was liquid capital to invest. So when he had the opportunity, he bought bitcoins using Circle. At this time, the price hovered around $200.
To invest means to profit, and when he saw a firm advertising on the popular precious metals price site, Kitco.com, that they were paying 10% over the market price per bitcoin, he was intrigued. Keith is exactly the kind of customer BTCLowen is looking for – mildly skeptical, new to the industry, and not expecting to get ripped off. Over the course of a few transactions, BTCLowen would bilk Keith out of 15 bitcoins.
"Kitco, you know, it's a highly reputable financial site. It's been around forever – everybody uses it, when you're dealing in gold and silver, really, and bullion, people who sell the bullion to you, that's what they use to get the spot price from and everything else," Keith explained to CCN.
BTCLowen claims to be long on bitcoin, and this is the reason they are willing to pay 10% above the market rate. In a down market, which is what we've been in since the end of December, investors will not exactly look a gift horse in the mouth right away. But a bit of thinking on the matter would lead one to realize that someone could simply buy the BTC at market rate and make a 10% profit right away, flipping them over to BTCLowen. Furthermore, why wouldn't BTCLowen just buy them at market rate, using an established service like LocalBitcoins?
The first thing I did when assigned this story was contact the site, asking what was the deal with PayPal accusing them of using stolen PayPal accounts? As you can see below, they were extremely defensive.
I called Keith Kaiser on the phone and recorded the call, so I could pull details from it later. What emerges is a very sad story of someone who just honestly wanted a piece of a new phenomenon. Keith, in regards to Bitcoin, is exactly what you think of when you think of a "Bitcoin civilian." He has no ties to any particular outfit; he's only looking to not miss the boat. He's not a computer expert, just an everyday nine-to-fiver who manages his money in such a way that he can invest and maybe retire early.
"The first transaction I did was one bitcoin because even though I found them on all these reputable sites and everything else, you know, it's still speculation. So I said, let's do one and see how it goes and make sure it's not something crazy – I mean, they may be unprofessional to talk to, but they're professional scam artists, I promise you that. So I sold them the one, and they tell you, later on if you're a repeat customer, if you sell them up to four, they'll give you 12%. If you sell them up to 10, they'll give you up to 14%. So the PayPal stuff came in instantly. So I checked it. It was in my account. So I'm like, alright, well; then I'll do four more. Same thing. Went through instantly. The money's in there. It's a plus, no minuses, it's good to go. […]
I set it up to transfer to my bank accounts. Nothing went on. Then, like, a day or two later, bitcoin started going up, so I figured – this is a legitimate thing – I went and when the bitcoin went up […] I sold ten of them to them. Then I went and checked my PayPal account, and now I see all my positive balances were back to the negative, and I called PayPal instantly, and they said they were putting stops on money, and they were saying it's not theirs. I get on BTCLowen's live chat, and they say, we're sorry, sometimes PayPal does that. We'll repay your money.
So it still sounds like it's a legitimate thing. They redid the money. One of the amounts went to me, actually, it clear. Then the large amount and the small amount got rejected again, so I called PayPal and said, What's going on? They never got me to the fraud department […] until it was too late, the third guy I talked to, he e-mailed me back, and said they're using other people's accounts."
After Keith got wise to their game, he started inquiring of them exactly what the hell was going on. In response, BTCLowen banned one of his IP addresses. He says he's sure this is what happened because he was still able to access the site from his mobile device.
I asked Keith to provide details of his encounter with PayPal as well as the transaction record, for clarity. Before we get to that, let's have a look at the Blockchain records of the bitcoins Keith sent them. They are here, here, and here. The common denominator is the address 13M5fwkMuFT7t3VY6Rm5tmZwm3kATUDmJo.
Here is what the PayPal fraud department representative had to say:
Dear Keith Kaiser,
Thank you for contacting PayPal Customer Support. My name is Adrian and we spoke earlier on the phone. I've done some investigating on my end and the conclusion to that is the accounts that the funds were given the money back to were in fact compromised and used without the real account holders authorization. The actual account holders called in to open up those cases. So the "company" you are doing business with is someone that has taken over certain PayPal accounts and are sending you payments without the account holders authorization. As far as the other account where the funds were not placed on hold; if that is not from the same company you have been dealing with then there might not be a chance of it being investigated. If it is from the same company then it's only a matter of time until the actual account holder will start an investigation. Please if you have any more question then feel free to give us a call at 1-888-221-1161.
It is my pleasure to assist you. Thank you for choosing PayPal.
PayPal Customer Solutions
PayPal, an eBay Company
Here is Keith's transaction log from PayPal:
BTCLowen.com Is A Scam
As it turns out, the operators behind BTCLowen.com were exposed by CoinTelegraph a few weeks back, and CCN ourselves were the victim of the stolen PayPal account game. They were purchasing advertising, of course, something that Keith says they're very good at it. He provided a long list of places he had seen their advertisements in, besides the reputable metals dealer previously mentioned. Places such as local, mainstream news outlets.
The biggest red flag with them was that they did not pay from a business PayPal account and paid from multiple PayPal accounts as well. So I must give the following warning in clear terms, so nobody's left wondering.
The following sites should be avoided at all costs. Selling any amount of Bitcoin to them is known to be a costly endeavor, as the funds will be reversed, and you will be without your Bitcoin afterward.
For all we know, the same people have opened up new sites in the meantime. BTCLowen itself appears to have been registered using a privacy service, and may or may not be hosted in Virginia. The address they were currently accepting with at the time of writing had received 86 BTC – about $23,000.
As for Keith, he hasn't fully given up on Bitcoin, even after all this. He reached out to us because he doesn't want anyone else to go through what he's gone through. He still holds more Bitcoin than your average internet troll, and says he plans to acquire more when the time is right. It says a lot about our favorite digital currency that even after getting scammed in such a heinous manner, people still trust it more than they trust the debt-based currency of our government.
CCN will keep you posted if any future developments arise.