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Financial fraud is as old as time, but the explosion of investor interest in cryptocurrencies of late has made digital assets a favorite tool for bad actors.
Scams involving crypto have become the “flavor of the year” in the financial fraud world, said Peter Diskin, assistant regional director at the U.S. Securities and Exchange Commissions Atlanta office, at a virtual event on trends in consumer fraud Wednesday.
“We see this all the time — that whatever is a popular topic becomes a way for fraudsters to get people’s attention,” he said. “They say this is something new and profitable,” while playing on people’s fear of missing out on the next big thing.
Complaints about fraud related to cryptocurrencies have grown exponentially in recent months, according to the Federal Trade Commission. Between October 2020 and May 2021, more than 7,000 people have reported scams to the FTC related to digital assets with a median loss of $1,900, a twelve fold increase in complaints and and 100-times increase in the median reported loss from the same period a year earlier.
Because cryptocurrency enthusiasts tend to congregate online to discuss the topic, and as cryptocurrencies have soared in value scammers are able to “blend into the scene with claims that can seem plausible because cryptocurrency is unknown territory for many people,” wrote Emma Fletcher a program analyst at the FTC in a recent report.
Diskin noted that the online nature of digital assets is more dangerous than traditional scams implemented in person or over the phone because international criminals can more easily prey on unsuspecting Americans on the internet.
“Not infrequently the money can be removed from U.S. bank accounts and go overseas, which makes it even more difficult to recoup things if something goes wrong,” he said.
Diskin pointed to a recent case in which the SEC charged a company called Blockchain Credit Partners with conducting a sale of a new cryptocurrency, telling victims that the proceeds would be used to buy car loans that would earn healthy returns. In fact the operators of the scam put the proceeds toward personal use or to pay off other investors.
“This is a very common framework and techniques,” Diskin said, though the technology and marketing campaigns to perpetrate the fraud made use of new technologies and terminology.
Diskin also warned about trusting celebrities who promote digital assets, because several recent cases show that they are not always forthright about their being paid for an endorsement, in violation of the law. He pointed to recent actions taken by the SEC to fine boxer Floyd Merriweather, musician DJ Khalid, and actor Steven Segal for promoting digital assets without disclosing their compensation.
