McLennan County resolves Bitcoin settlement after admitting funds seized in ‘error’

WACO, Texas (KWTX) – McLennan County officials have resolved a lawsuit that claimed sheriff’s investigators unlawfully seized funds from a Bitcoin ATM after an 82-year-old Crawford woman reported scammers convinced her to convert $15,000 into Bitcoin cryptocurrency.

Lux Vending, which does business as Bitcoin Depot, agreed to dismiss the lawsuit and allow the woman to keep her money after McLennan County Judge Scott Felton admitted that the funds were seized “in error” and that it was premature for the sheriff’s office to have returned the money to her.

Lux’s lawsuit against the sheriff’s office alleged investigators violated due process procedures when it obtained a search warrant to seize the money from one of its kiosk machines at a Sunoco store at 7500 Bosque Blvd. The suit also asked a judge to declare Bitcoin Depot the rightful owner of the cash.

McLennan County Sheriff Parnell McNamara, who said in June that his officers “did everything right” and that Bitcoin Depot officials “can go to hell,” declined comment Wednesday about the dismissal of the lawsuit. He also declined comment when asked about Felton’s comments in a letter to Bitcoin Depot’s chief operating officer that said the funds were seized in error.

Ryan Deloney, a spokesman for Bitcoin Depot, said in a statement that the company cully cooperated with McLennan County law enforcement throughout the process. Deloney reiterated Bitcoin Depot’s “diligence in protecting its customers from illegal activity, cooperating with law enforcement officials to reach a resolution and enacting procedures to help identify and eliminate future bad actors seeking to take advantage of unsuspecting citizens.”

Felton did not respond to messages from KWTX on Wednesday.

“The seizure of the money at that time was an error based on a misunderstanding that the funds belonged solely to the customer, not the company,” Felton wrote in a letter to Bitcoin Depo obtained by KWTX. “…Due to the timing of the communication and the return of the funds happening at the same time, the money was not maintained by law enforcement officials and, instead, was provided to the victim.”

Felton wrote that because of a “misunderstanding and the difficulty in communication,” McLennan County officials were not aware of the company’s terms and conditions. He acknowledged the money no longer legally belonged to the customer at the time the cash was returned.

“The release of the money to the McLennan County resident was based on a good faith belief that there were no competing claims for the legal interest of the money,” Felton wrote. “Officials later determined that it was premature to have distributed the money which was seized for ‘evidentiary purposes.’”

Felton wrote he appreciated the company’s cooperation in trying to identify the scammer.

Waco attorney Mike Dixon, who represents the county, said Bitcoin agreed to dismiss the lawsuit and the woman got to keep her money. The county paid Bitcoin Depot nothing, he said.

“All Bitcoin wanted was a letter showing they weren’t the bad guys here, that they had procedures and warnings in place to try to stop this from happening and that they tell people not to send Bitcoin to wallets the person does not control,” Dixon said. “So it was more about making it clear that Bitcoin Depot wasn’t the scammer. This was a third-party international scammer and Bitcoin Depot was helpful in assisting and trying to locate the scammer.”

The Crawford woman reported the elaborate scam to the sheriff’s office on April 27, and a detective got a search warrant on May 3 to seize the money from the Bitcoin kiosk.

According to the search warrant affidavit, the woman said she was online looking up cooking recipes when she received an email with a link to view a recipe. She clicked the link, which the affidavit said appears to have activated a “Ransomware” computer virus.

She contacted “customer support” and was transferred to a “fraud investigator,” the affidavit states. She was told all her personal information had been compromised and that the fraud department could help her work through the problem.

The woman said she should contact her bank and law enforcement but was told it was not necessary because at that point, nothing had happened with her bank account and a “computer virus” was not something law enforcement would respond to, according to the affidavit.

Next, the “fraud investigator” asked if she had written a check for a laptop. She said no, and the “fraud investigator” said a check just cleared the bank that someone wrote to pay for a laptop.

“The ‘fraud investigator’ then told (the woman) he could see where a check was written to a construction company in the amount of $15,000, which had not cleared yet. (The woman) was then given instructions on how to prevent the loss of this amount of money,” the affidavit states.

The woman was told to drive to her bank, make a $15,000 cash withdrawal and then go to the store and deposit it into the Bitcoin machine. She said she knew nothing about Bitcoin and told the man she was going to call law enforcement.

“(The woman) said the person on the phone stressed that essentially the longer she took to get the money out of the bank the closer the check could be to clearing,” the affidavit says. “(The woman) said she followed the instructions and that the guy stayed on the phone with her the entire time. (The woman) said she deposited $15,000, $100 at a time.”

McNamara said in June the issue is no different than his agency recovering stolen cars, guns or four-wheelers and returning them to their rightful owners.

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