We hear time and again from victims who have lost money with an internet broker that the broker requires “proof of liquidity” as a condition of doing business with them. You should be suspicious if your broker or trading platform suddenly demands “proof of liquidity” as a condition for paying out your funds.

We have learned through our work that these demands for proof of liquidity are always a sign of dubiousness. The aim of fraudsters is, of course, to get you to transfer even more money. Do not be fooled by the allegedly common demand. As an investor, you are in no way obliged to prove your liquidity by making a payment.

The online broker wants proof of liquidity – do I have to pay?

The broker’s demand for proof of liquidity points to possible fraud. You have probably used the services of an internet broker to invest money. The broker contact seems credible and the returns have been satisfactory so far. The problem occurs exactly when you request the payout.

It is common practice for fraudulent online trading providers to demand proof of liquidity and a “payout guarantee” before transferring bitcoin or euros to their account. This is done so that the trader’s “pretend” profits can be converted into fiat currency and withdrawn.

You can assume a dishonest broker if the previously mentioned circumstances occur. This is because in the real world of finance there is no proof of liquidity to be provided in this way. The dishonest brokers here are only after your hard earned money.

What is proof of liquidity and what is its purpose?

Indeed, there are situations in which a “proof of liquidity” is required. This is particularly relevant for companies that need to prove that they have sufficient cash. Commonly, these proofs are mainly used for the purchase of real estate. However, these are not payments, but documents, i.e. proof of the availability of funds.

However, such proof of liquidity does not exist for private individuals in the internet broker sector. Companies have a number of possibilities to prove their own liquidity or the financial stability of their management and operations.

This should show whether the company in question has the current and future financial resources to meet its obligations. In the event of impending insolvency, this may be of importance. In the case of private investments, it does not matter whether the investor has other means of income.

Proof of liquidity broker – be suspicious of this requirement

In certain circumstances, proof of quick access to funds in the form of a payment is required. Be suspicious of anyone asking for ‘proof of liquidity’ and do not make any payments until you are satisfied that the request is legitimate. Be suspicious if someone asks for proof of liquidity purporting to allow you to withdraw your funds or profits.

The purpose of asking for proof of liquidity is to force you to hand over even more money. No trustworthy broker would ask you for proof of liquidity or further cash deposits before releasing your funds. Unfortunately, this common practice of broker fraudsters results in an even greater financial loss for the broker’s victims.

For the sake of justice, it is imperative that victims report such scammers immediately.

Warning about guarantees

Documents and “guarantees” presented in exchange for proof of liquidity should be treated with suspicion. Time and again we receive forged “Allianz” documents from clients bearing the insignia of Germany’s largest insurance company. In some documents, copies of identity cards are inserted into the alleged insurance guarantee.

A message is added stating that the person is a consultant and lawyer for the insurance company. Do not make any payment without checking these documents first. This is the only way to prevent further financial loss. Send us any documents claiming to be insurance policies or guarantee statements. We will evaluate them as part of an initial review.

Fake documents are often passed off as genuine

You should also be suspicious of emails or letters asking for confirmation of liquidity. Blockchain.com, for example, focuses on providing wallets for blockchain use. Customers never have to request a withdrawal of deposited funds. Instead, withdrawals are made immediately upon receipt. The same is true for Kraken, Binance and crypto.com.

Cryptocurrency exchanges do not require users to prove they have access to funds before trading. Be wary if your trading platform or broker requires “proof of liquidity” before you can withdraw funds. It has been shown many times in the past that liquidity confirmation is just another scam.

The real motivation of the scammers is to increase their financial gain at your expense. Do not be fooled by this foolish scheme. In this form of online trading, such proof is not required.

Prove liquidity the other way round

In cases where dodgy brokers are involved and backers are not sure whether it is a broker scam or not, proving liquidity is useful. However, in reverse. The provider must prove that it has the funds to meet its clients’ withdrawal requests.

For the simple reason that it is impossible to draw clear conclusions about the liquidity of the broker platform from a graphical representation of price movements, returns and profits or from account balances. Especially since these may be completely fictitious and falsified.

In all cases of fraud known to us, the victims were shown unrealistically high account balances after allegedly successful investments. In each of these cases, they were fakes and fraud. Either the investment was not made or the results were completely different than expected.

When trading cryptocurrencies, dubious brokers can even forge documents purporting to come from crypto exchanges. Details such as the amount of bitcoins and the address of the recipient’s wallet are simply changed. This serves to silence the enquiries of potential fraud victims.

Liquidity proof brokers in cryptocurrencies

Fraudsters in the online trading and crypto trading world often request proof of liquidity from their victims in order to steal from them. They target the following cryptocurrency exchanges in particular.

  1. Binance
  2. Coinbase
  3. blockchain.com
  4. Kraken
  5. Crypto.com

None of these exchanges would ever require proof of liquidity from their customers. Nor would it make sense for brokers to demand additional funds from their customers just so they can withdraw money.

Does your broker insist on proof of liquidity? Here are 6 pieces of advice

You can manage the current situation by following these 6 pieces of advice.

  1. Contact a lawyer you trust if you have reason to suspect investment fraud.
  2. Whether you are asked to provide “proof of liquidity” or pay “tax bills”, you should not.
  3. If you have already given the fraudulent broker access to your terminal via a remote desktop program such as Anydesk or Teamviewer, you should change your passwords immediately.
  4. Under no circumstances should you reveal the passwords to your wallets, even if the broker is trying to blackmail or threaten you.
  5. Keep records of your interactions with the internet broker, including screenshots and their contact information.
  6. Never give in to increasing pressure from the internet broker. This is a common complaint we receive from clients and it is just another method scammers use to try to get you to send them money.

Do not hesitate to consult legal counsel. You are one of countless innocent victims who have fallen for unscrupulous scammers.

The typical practice: brokers demand proof of liquidity

From our many years of legal experience, we know that dubious intermediaries, brokers and online trading providers always demand proof of liquidity. And this as a condition for the payment of the investor’s earnings. In addition to the demand for proof of liquidity, clients are often also asked to pay dubious commissions or an alleged tax.

The brokers’ and online brokers’ justifications range from the need to comply with anti-money laundering legislation to the fact that the funds have been blocked as collateral and may only be disbursed against an additional payment. In online trading, the term “proof of liquidity” should set alarm bells ringing.

If you or someone close to you has lost money invested on a fraudulent internet trading site, our law firm can help. Enquire with us about a free initial consultation.