Getting Sued For $70,000 (With Zero Assets or Funds)

[KenCorigliano]

Long story short, my friend was an affiliate marketer for a crypto investment product.

The crypto product ended up being a scam where thousands of people lost all of their money (like BitConnect).

My friend also lost all of his money as he didn't realise it was a scam.

One of the people that my friend referred to join the investment lost $70,000 and is now threatening legal action (w/a law firm) against my friend if he doesn't pay the $70,000.

They seem to be confident that they would win in court based on my friend promoting a financial product to them without a financial license.

(The owners of the crypto investment scam ran off and can't be found by anyone as they used fake names, etc..).

The problem is that my friend has no income, savings, or assets. He's young.

He can't afford to pay $70,000 like the person is wanting from them.

1) How would legal fees cost if my friend has no money to go to court?

2) Hypothetically if the other side wins (which my friend says they won't) - How would he deal with paying $70,000 when he has no income, savings, or assets?

3) Should my friend communicate to the suers that he has no $, so it might make them realise that they're wasting their time going after someone with no $?

I think the IRS designated crypto currency as property not financial instruments. Not saying this would stop any attorney from writing a $600 threatening letter, nor am I alleging legal letters can write in all sorts of things just to scare you even though they have no chance in a court. Lots of legal documents are unenforceable.

Digital Assets | Internal Revenue Service

You may have to report transactions involving digital assets such as cryptocurrency and NFTs on your tax return.

www.irs.gov

Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency (i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance), but it does not have legal tender status in the U.S. Cryptocurrency is a type of virtual currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain, DAG, or Tempo.

Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin, Ether, Roblox, and V-bucks are a few examples of a convertible virtual currency. Virtual currencies can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies.

Tax Consequences
The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.

The IRS issued IRS Notice 2014-21, IRB 2014-16, as guidance for individuals and businesses on the tax treatment of transactions using virtual currencies.

The IRS also published Frequently Asked Questions on Virtual Currency Transactions for individuals who hold cryptocurrency as a capital asset and are not engaged in the trade or business of selling cryptocurrency.

This doesn't necessarily mean they don't have a case to sue at all. Either way like MJ talks about, if it sounds too good to be true, it likely is. I was morally against cryptocurrency. Even those people who made a lot of money off it it, what's the point? It was a slimy suspicious way of getting money that is equivalent in my opinion of selling "perceived value" that MJ talks about. No good is coming out of cryptocurrency that I can condone. My two cents, don't need to be anyone else's.

 

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[Rabby]

I'll type as if I'm typing to your friend, so that's what I mean if I type "your." It's just shorter that way. My perspective is "ordinary business person" so take it for what it is:

At least have preliminary talks with an attorney. Pay the $300 consultation fee or whatever. If these people have an attorney, I suggest not contacting that attorney directly. Their goal is to suck you dry, and any information you give them will be used for that purpose.

Also, if you get an attorney, they will be obligated to communicate through the other party's attorney, if they have one. The plaintiff (if this becomes a legal action) will probably know to refer all communications to their lawyer anyway.

A creative solution: your friend can offer to volunteer a large amount of hours (e.g. 300 hours) at some charity of mutual choice — perhaps something about financial education for disadvantaged populations — and send the other party regular proof that he is fulfilling his obligation. This will have some philosophical fairness to it, while also making it more difficult to be angry at your friend, for anyone including a judge.

If the other party is just mad, I love this idea. If things are still civil and no lawyers are involved, it might be a good idea to propose this (maybe if things are hot too). But I would still make that initial lawyer call. Then try to find a non-profit that results in good networking for you. Maybe Habitat for Humanity, or the local museum or zoo or something.

One thing to keep in mind is that if there is a plaintiff's attorney involved, they get paid by taking, say, 25% of whatever they can win for their client. They would prefer to garnish your wages or squeeze your relatives into paying a settlement on your behalf, since they actually get paid that way. They won't get anything out of a settlement that doesn't cost you money or assets.

 

[Onimusha]

Long story short, my friend was an affiliate marketer for a crypto investment product.

The crypto product ended up being a scam where thousands of people lost all of their money (like BitConnect).

My friend also lost all of his money as he didn't realise it was a scam.

One of the people that my friend referred to join the investment lost $70,000 and is now threatening legal action (w/a law firm) against my friend if he doesn't pay the $70,000.

They seem to be confident that they would win in court based on my friend promoting a financial product to them without a financial license.

(The owners of the crypto investment scam ran off and can't be found by anyone as they used fake names, etc..).

The problem is that my friend has no income, savings, or assets. He's young.

He can't afford to pay $70,000 like the person is wanting from them.

1) How would legal fees cost if my friend has no money to go to court?

2) Hypothetically if the other side wins (which my friend says they won't) - How would he deal with paying $70,000 when he has no income, savings, or assets?

3) Should my friend communicate to the suers that he has no $, so it might make them realise that they're wasting their time going after someone with no $?

I sent you a PM. Check it out.

 

[GetShitDone]

UPDATE: A few months later of "silence" from the other side, they've sent my friend a 2nd letter saying instead of demanding $70K from him - They will accept $35K (With $15,000 upfront and the rest paid in installments over 18 months). If he does that, there will be no court/sueing.

Otherwise, they say they will go forward with court proceedings to sue my friend for $70K - despite my friend writing a letter to them saying that he has NO money to offer them (he literally has no assets or income).

He has by this week to respond or they'll be going forward with court proceedings, so my friend is wondering how to respond (EG. He's wondering if he should tell them he has no money again)

What do you think is going through their head if they now have a new offer (after 4 months of silence) where they are demanding 50% of their original ask after hearing that my friend has no money to give them?

 

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[GetShitDone]

They probably don't believe him. "I have no money" is a common refrain in these situations. They are probably probing for more info. Coming down 50% makes them seem reasonable. Maybe he's willing to negotiate now...

My friend told them that they do an asset search, check bank account records, etc everything though.

4 months later, they reply with this.

Therefore, perhaps either they're probing to see if he's serious that he has nothing... (which is weird as I would of assumed their lawyer would attempt to find out if he actually HAS money via proof)

Or.. they want to negotiate something.. or just don't believe him.

However, I don't see how its worth their time to sue someone (without checking for actual proof that they have no money).

Makes no sense to just throw another demand for money at them when the person says he has nothing and that they can check themselves.

 

[BizyDad]

They can't just check for themselves. A lawyer can't just check how much money you keep in an IRA or bank account. (I'm assuming your friend is in the US. I don't know other country's laws, but I'd be shocked to find out different).

Besides, we don't know if they are going to file a lawsuit. Right now, its just a threat. A negotiation tactic.

Bill collector's use this tactic too, prey on someone up to years later, hoping to get their conscience to kick in and then they can collect something.

I mean, they've introduced a payment plan for a reason... Just because he has no money now doesn't mean he won't ever have any money.

I think I said this before, but I'll say it again. Your buddy should be running this kind of negotiation through a lawyer, even if it doesn't end up in court.

 

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[GetShitDone]

They can't just check for themselves. A lawyer can't just check how much money you keep in an IRA or bank account. (I'm assuming your friend is in the US. I don't know other country's laws, but I'd be shocked to find out different).

Besides, we don't know if they are going to file a lawsuit. Right now, its just a threat. A negotiation tactic.

Bill collector's use this tactic too, prey on someone up to years later, hoping to get their conscience to kick in and then they can collect something.

I mean, they've introduced a payment plan for a reason... Just because he has no money now doesn't mean he won't ever have any money.

I think I said this before, but I'll say it again. Your buddy should be running this kind of negotiation through a lawyer, even if it doesn't end up in court.

Good points.

I believe my friend meant they can do an asset search to see what assets are in his name (Eg. real estate, etc).

Gotcha. So you're saying there might be a possibility that they'll just keep sending these letters till my friend "bites" and accepts some sort of payment plan.

By the way, they told my friend that the "deadline" to respond to the offer is by this Friday or else they won't make the offer again and will go to court.

Well yeah, in the lawyer's website (that the guy whose demanding money from my friend is using).. it states one of their services is to basically send letters to get settlements. So I'm sure this is apart of their "strategy".

Yes, he's going to be speaking to lawyers.

My friend's wondering if he should respond to tell them that he seriously doesn't have any money OR just not respond at all.

 

[GetShitDone]

UPDATE: A few months later of "silence" from the other side, they've sent my friend a 2nd letter saying instead of demanding $70K from him - They will accept $35K (With $15,000 upfront and the rest paid in installments over 18 months). If he does that, there will be no court/sueing.

Otherwise, they say they will go forward with court proceedings to sue my friend for $70K - despite my friend writing a letter to them saying that he has NO money to offer them (he literally has no assets or income).

He has by this week to respond or they'll be going forward with court proceedings, so my friend is wondering how to respond (EG. He's wondering if he should tell them he has no money again)

What do you think is going through their head if they now have a new offer (after 4 months of silence) where they are demanding 50% of their original ask after hearing that my friend has no money to give them?

 

[Kevin88660]

My friend told them that they do an asset search, check bank account records, etc everything though.

4 months later, they reply with this.

Therefore, perhaps either they're probing to see if he's serious that he has nothing... (which is weird as I would of assumed their lawyer would attempt to find out if he actually HAS money via proof)

Or.. they want to negotiate something.. or just don't believe him.

However, I don't see how its worth their time to sue someone (without checking for actual proof that they have no money).

Makes no sense to just throw another demand for money at them when the person says he has nothing and that they can check themselves.

They are not even sure of they (plaintiff) Can win.

They do not have a strong point to begin with.

 

[Roli]

UPDATE: A few months later of "silence" from the other side, they've sent my friend a 2nd letter saying instead of demanding $70K from him - They will accept $35K (With $15,000 upfront and the rest paid in installments over 18 months). If he does that, there will be no court/sueing.

Otherwise, they say they will go forward with court proceedings to sue my friend for $70K - despite my friend writing a letter to them saying that he has NO money to offer them (he literally has no assets or income).

He has by this week to respond or they'll be going forward with court proceedings, so my friend is wondering how to respond (EG. He's wondering if he should tell them he has no money again)

What do you think is going through their head if they now have a new offer (after 4 months of silence) where they are demanding 50% of their original ask after hearing that my friend has no money to give them?

My guess is, a lawyer has told them they might have a hard time winning, and they risk losing their costs. Going to court is often a lottery, so out of court settlements are usually preferable.

However, as I said originally when you posted this, I very much doubt they have a leg to stand on.

I would tell your friend to remind them that he was an affiliate, and made it clear at the time, that he was not a financial adviser and also lost money himself.

As a point of interest, I quickly googled "suing affiliate marketers in the States"

There are a couple of results, one from this year. However the details (which I scanned), are that the affiliates, lured investors by printing blatantly false claims. Also it is implied that corporate interests held by the defendants were somehow involved in the scam.

So my guess from that would be that, if the other side could prove your friend was printing claims that he himself knew to be false, and was financially benefiting from the deception, then there's a case.

However if your friend can prove at the time that he too lost money, and printed the info on his site in good faith, and did not profit in any other way than his affiliate commissions, then they probably would lose.

As I said court, especially litigation court, is a lottery though, and it's still worth seeking some professional legal advice.

I personally though, would be chilled about this, I'm fairly sure they've found out the cost of suing him would far exceed any (unlikely) payout they'd get from him. I'd call their bluff and say, go for it, take me to court.

 

[lomb]

What happens if the affliate marketer is a LLC. Can they still come after you personally? What if its a foreign corporation but your a director of it, again can they sue personally?

 

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[100ToOne]

We've got a lot of companies that operate the same way over here, but these companies usually don't suffer any consequences because the guys who make them know how to scam you legally with their lawyers.

Therefore I'd say ask a lawyer and he can answer you.

 

[GetShitDone]

My guess is, a lawyer has told them they might have a hard time winning, and they risk losing their costs. Going to court is often a lottery, so out of court settlements are usually preferable.

However, as I said originally when you posted this, I very much doubt they have a leg to stand on.

I would tell your friend to remind them that he was an affiliate, and made it clear at the time, that he was not a financial adviser and also lost money himself.

As a point of interest, I quickly googled "suing affiliate marketers in the States"

There are a couple of results, one from this year. However the details (which I scanned), are that the affiliates, lured investors by printing blatantly false claims. Also it is implied that corporate interests held by the defendants were somehow involved in the scam.

So my guess from that would be that, if the other side could prove your friend was printing claims that he himself knew to be false, and was financially benefiting from the deception, then there's a case.

However if your friend can prove at the time that he too lost money, and printed the info on his site in good faith, and did not profit in any other way than his affiliate commissions, then they probably would lose.

As I said court, especially litigation court, is a lottery though, and it's still worth seeking some professional legal advice.

I personally though, would be chilled about this, I'm fairly sure they've found out the cost of suing him would far exceed any (unlikely) payout they'd get from him. I'd call their bluff and say, go for it, take me to court.

Great points and appreciate it.

UPDATE: 2 months later after their new demand of $50K, they now have said that they want a response in 2 days to discuss the matter by phone OR they will go begin legal proceedings. My friend's wondering what their perspective is.

 

[sparechange]

Cant he just fail for bankruptcy while getting sued? Not a lawyer here, although I guess if they decide to take action you can't really sue someone if they are broke?

 

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[WJK]

Great points and appreciate it.

UPDATE: 2 months later after their new demand of $50K, they now have said that they want a response in 2 days to discuss the matter by phone OR they will go begin legal proceedings. My friend's wondering what their perspective is.

My guess is that they are just trying to kick up the dirt again. Suing your friend can cost them more than they are asking. I can't and will not give legal advice, but I personally would ignore them. If they file and they really push the issue -- I'd drag it out and then offer to settle it as a nuisance suit -- which normally settles for around $5K. The good part is that if they file, then your friend can find out what cards they are holding through the discovery phase. What theory are they suing under? What evidence of wrongdoing do they have? How strong is their case? How much fire do they have in their bellies for this cause of action? 2 days or what? Do they have an attorney or are they talking for themselves? What have they been doing for the last 2 months? If I did talk to the other side, I start asking questions and not stop until they retreat with their tail between their legs.

 

[OkLetsGo]

Great points and appreciate it.

UPDATE: 2 months later after their new demand of $50K, they now have said that they want a response in 2 days to discuss the matter by phone OR they will go begin legal proceedings. My friend's wondering what their perspective is.

Hey, it's low-key random since it's been 3 years, but how did it turn out for your friend?

 

[Johnny boy]

Alright here's what you should do, er...I mean....your friend.

Your "friend"....should

Block them.

Don't answer the door.

Delete everything.

There's not a big risk of criminal prosecution. A prosecutor has to do that. You don't get to just run around and say "billy broke the law send him to jail!". Someone in an office needs to hear about it and decide it's worth their resources. It probably isn't.

Any law firm that hears this case is going to calculate the settlement value as like $1000 and not take it. They will say "next time get scammed by warren buffett, sorry bud".

Almost anything your friend hears will just be empty threats. It won't change anything anyways. This is one of the few times that ignoring things can make them go away.

You have no idea how common it is for people to not get paid. It's like the biggest issue ever. You just don't pay things and they pout a bit and then go away. It happens to us, it happens to everyone, and your friend should make sure it happens to the guy pouting about his money.

Man, if you're gonna risk this much trouble, make sure you get to keep the money at least!!

 

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[Johnny boy]

I used to be a bankruptcy attorney back in the day ... here are my thoughts:

Getting a judgment is easy.

Collecting on the other hand ... now that's the bitch.

There is nothing more futile and counterproductive than suing a broke defendant.

Not only are you out the cost of whatever you lost ... now you get to lump in the cost of your legal fees on top of it.

More salt in the wound ...

Worse yet ... even if you go the distance and take the case all the way to judgment ... odds are the defendant will file for bankruptcy before you collect a single cent - at which point you're beyond F*cked.

Even without bankruptcy ... a debt like this would never get paid. Most or all of his income and assets are likely exempt from execution under state law anyway.

F*cked with a capital F.

Their only real hope of collecting is that this guy doesn't know any better and borrows the money from a relative. And some people will. Because they don't appreciate the true predicament the other side is in.

Debt collectors are all bark, no bite.

Even when a creditor serves you will legal papers often they have no real intent of following though. Just another scare tactic.

So my thinking ... me personally ... I'd tell them I was contemplating bankruptcy then cut off communication. That typically puts an end to it. Or better yet, hire a BK attorney and refer them over to him. Doesn't cost much. That almost always kills it right there. Even if you don't ultimately follow through. There is nothing that will kill a debt collectors boner faster than a bankruptcy attorney.

Trust me ... I know. I've killed more boners than you can shake a stick at (pun intended).

When the BK attorney shows up ... they are beyond F*cked and they know it. Time to move on ...

On the flip side ... keep this all in mind when you conduct your own deals. If you do business with a judgment proof debtor ... you're spinning the chambers. Assume if the deal goes south you'll never see a dime ... because odds are you never will.

So what do I do in my law practice ...?

I always make sure that the client who hires me has reliable income, substantial assets and is collectable. And most importantly - I get my money up front. If I have any doubts about their ability to pay, I take a pass or, in the alternative, if their parents, spouse or significant other is collectable - I have them co-sign the debt. All of which means ... my collection rate is near 100 percent.

But I digress ...

Long story short .... I think your guy wil be fine.

Cheers

great post 100% agree.

Side note: We get judgements for a couple grand each against customers that don't pay us. They have income, assets, we know where they live, etc. What's the best way to collect on the judgements?

 

[Kevin88660]

Plenty of top youtubers and celebrities did marketing for FTX.

There are cases of people going after them for compensation. These marketers have money and are millionaires.

But the legal reasonings for the plaintiffs seems weak. There is no reason to believe that the celebs in anyway know of the internal malpractices of FTX (taking customer money to trade).

 

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