“I’m much more confident with crypto than with
banks or fiat currency because I can actually control it, and the
money supply is transparent, stated upfront. It makes online
shopping a lot easier and a lot safer.” This statement
was made by Erik Voorhees, the creator of cryptocurrency exchange
ShapeShift.1 While he is correct in that virtual
currency does make online shopping a breeze, which of course is
great for ecommerce, it is not without its risks. And
unfortunately, those risks are unknown to the average shopper or
cryptocurrency investor. In today’s world of technology,
advancement often comes with nefarious individuals who want to take
advantage of the unsuspecting shopper or internet user.
Cryptocurrency is often referred to as virtual currency or
tokens and was introduced 14 years ago as an alternative to
physical currency in the centralized banking system. It is managed
on a platform called the blockchain and has an open ledger for
recordkeeping, available for all to see. Like it’s physical
counterpart, cryptocurrency is highly susceptible to fraudsters who
will attempt to find vulnerabilities in the system and obtain funds
through illegitimate means from victims.
And as cryptocurrency grows in popularity, so does its rate of
fraud. According the Web3 Security Report issued by CertiK, a
pioneer blockchain security company, and its CEO Ronghui Gu
(speaking in regards to fraud), “at $3.7 billion, 2022 is the
worst year on record in terms of value lost, far surpassing
2021’s $1.3 billion.”2 Therefore, we need to
take an active role in fraud prevention and providing education to
those wanting to invest in cryptocurrency.
TYPES OF CRYPTO SCAMS
ROMANCE SCAMS
Often seen in traditional banking relationships, romance scams
have grown exponentially in the crypto world. Scammers will create
fake online profiles and regularly include pictures of attractive
individuals taken from the internet. They will study public
information victims include in their social media and pretend to
share common interests and beliefs. Often, scammers reach out to
victims on dating apps or via private messaging on social media
platforms. Romance scams are what are considered “long”
cons. Once the scammer has developed a relationship with the
victim, they will turn the conversation to cryptocurrency and
attempt to convince them to send money to help the scammer after an
“accident” or “family emergency.” Sometimes,
the scammer will try to sell the victim an investment opportunity.
The scammer is banking on the established relationship that the
victim will help them because they believe the relationship is
real, despite the fact that the scammer and victim have never met
in person. The scammer will always make up reasons why their
relationship must remain online, such as they work overseas, are in
the military, or travel internationally for work (among other
excuses). Also, they will always refuse to meet via Zoom or other
video conferencing app.
INVESTMENT SCAMS
With the state of today’s economy, everyone is looking for a
way to make a few extra dollars. Scammers are taking advantage of
that desire by offering investment opportunities that have
“guaranteed” high returns. As aforementioned, scammers
will reach out to the victims via dating apps or social media
platforms, sometimes impersonating love interests or investment
managers. They will attempt to convince the victim that the
investment has little or no risk and will always earn the victim a
lot of money. Some of these situations involve “pump and
dump” schemes, where the scammer will try to get the victim to
purchase the crypto at what they deem a “low price,” with
promises that the crypto’s value is going to increase and
produce a massive windfall. To make the asset appear more enticing,
they will often “pump” up the value and popularity of it
in order to get multiple investments.
Scammers will also create fake exchanges and advertise
cryptocurrency at rates below the market value and promise big
returns on their investment. All that is required will often be a
high introductory fee. And when the victim attempts to exit the
profits they believe they have generated, the company has
disappeared or is unreachable.3
INITIAL COIN OFFERINGS (ICO)
Scammers often use ICOs as a chance to get money from uneducated
investors new to the crypto world. The ICO is fabricated and not
include any real information, such as the names of employees or
whitepapers published about the coin.
PHISHING SCAMS
Phishing has been a tried-and-true method of fraud that has
worked for a long time, in and out of the crypto world. Scammers
will attempt to get personal or financial details from the victims
through various methods. They often reach out electronically to the
victims, sometimes impersonating a legitimate company (ex. Amazon
or a financial institution), and entice them to click on a link,
webpage, or video. There will either be embedded malware in the
links and video or will redirect the victim to a page that is not
associated with the legitimate business (but looks so similar to
the correct page that the victim does not notice the changes). The
malware will steal the victim’s private keys for their crypto
wallets, their sign-in credentials for exchanges, or other personal
information to help the scammer access these platforms. The
scammers might also trick the victim into sending money to their
wallet, instead of a legitimate one they think they are using.
UPGRADE SCAMS
As technology is always expanding, software is always in the
need of the latest patches and updates. This also applies to
cryptocurrency exchanges. During these updates, scammers will
contact victims and attempt to convince them that they (the
scammers acting as the exchange or platform) needs your login
credentials or private keys in order to complete the upgrade.
Sometimes, these scams align with legitimate mergers which are
well-known, so victims are often less to question the contact.
SIM-SWAP SCAMS
This is one of the most recent scams out there today involving
cryptocurrency. Scammers reach out to the victim’s phone
carrier and pretend to be them, requesting that the phone number be
transferred to a new phone. They often obtain the necessary
personal information to impersonate the victim through a separate
hack or method. Once they are able to convince the customer service
representatives to transfer the phone number to the new SIM card
(controlled by the scammer), they are able to access the phone
data, such as log-in credentials and downloaded apps (such as
social media and financial). In addition, since they now control
the phone number, they are able to get around any two-factor
authentication requests. This allows the scammer to access the
crypto wallets and other accounts, often resulting the theft of the
assets before the victim even knows that any changes have been made
to their phone number and accounts.
HOW TO AVOID CRYPTO SCAMS
Always check the sender’s email address on any
communication.
Check to make sure the websites you visit are legitimate (ex.
Gogle.com vs Google.com) or that there are not spelling errors in
the web information provided to you (by the scammer).
Use bookmarks to visit your financial websites, especially
crypto exchanges; do not click on the links in the emails to get to
the webpages.
When working with individuals across social media, be sure to
thoroughly review their page. Check for how long the account has
been created and if they have a consistent history of posts and
activity. Be very wary of brand new accounts, with little or no
posts, and few followers that are attempting to sell you crypto
products.
Do not believe that any investment has no risks or can generate
unreasonable returns/profits.
Be cautious of messages from individuals you do not know or
individuals you have been communicating with that refuse to meet or
even conduct a video call.
HOW TO REPORT CRYPTO SCAMS
If you or someone you know may be a victim of fraud, you can
report these scams to the following:
- the FTC at ReportFraud.ftc.gov
- the Commodity Futures Trading Commission (CFTC) at
CFTC.gov/complaint - the U.S. Securities and Exchange Commission (SEC) at
sec.gov/tcr - the Internet Crime Complaint Center (IC3) at
ic3.gov/Home/FileComplaint - the cryptocurrency exchange company you used to send the
money
FINAL COMMENTS
At Ankura, we want to do everything we can to protect consumers.
We work with companies in various industries, including
cryptocurrency, and have experience in cases involving fraudulent
actors. If you find yourself in need of advice, or services to
protect your company from the ever-evolving world of fraud and
security risks, we are here for you. Do not hesitate to reach out
to us.
Footnotes
1. https://blockonomi.com/gleec-coin-exchanges/
2.
https://www.certik.com/resources/blog/2aHoafYEoeRguK2gE9fD1s-hack3d-the-web3-security-report-2022
3
https://www.forbes.com/advisor/investing/cryptocurrency/top-crypto-scams/
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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