Cryptocurrency is ripe for fraud and financial loss

BBB

Cryptocurrency is the hot new trend
in investing, and much is still not understood about this buzzy,
volatile digital payment system that does not rely on banks to verify
transactions. This has created a fertile environment for scams,
according to a new in-depth investigative study by Better Business
Bureau® (BBB®), which states: “A virtual tug of war exists between the legitimate and fraudulent use of cryptocurrency.” 

The study – Cryptocurrency
scams: BBB study finds lack of regulation and consumer education
results in dramatic increase in fraud and financial losses
– examines the many facets of cryptocurrency and the variety of ways
criminals are exploiting the cryptocurrency market to steal from
investors and victims of common scams. Read the full study. 

Cryptocurrency is a form of digital money
whereby encryption technology can enable anyone anywhere to send and
receive payments. It does not exist in a physical form such as paper
money, but as lines of computer code, supported by a decentralized
computer system known as blockchain and stored in a “crypto wallet.”
Bitcoin, developed in 2009, is the most popular form of cryptocurrency,
available for purchase at tens of thousands of Bitcoin ATMs and
increasingly accepted as payment in certain retail transactions.
Ethereum is the second most common cryptocurrency and is centrally
involved in the increasingly popular non-fungible tokens (NFTs), digital
assets such as pictures or music that are purchased with cryptocurrency
as an investment. Critically, cryptocurrency operates outside the
traditional banking system and is not subject to the same protections as
bank deposits or credit card transactions. 

Reports from victims of large financial
losses to cryptocurrency related scams are skyrocketing. In 2021, BBB
received more than 2,400 complaints with monetary losses of nearly $8
million involving cryptocurrency companies. BBB Scam Tracker reports
about crypto scams numbered more than 1,200 in 2021 and likewise totaled
nearly $8 million in losses. Scam Tracker reports to BBB tripled between 2019 and 2021, and reported losses tripled over the last two years. 

Cryptocurrency accounted for the second
highest scam losses reported to the Federal Trade Commission (FTC) in
2021, with losses of $750 million. The FBI’s Internet Crime Complaint
Center (IC3) and the Canadian Anti-Fraud Centre (CAFC) also had major
increases in reports received and major increases in losses. BBB’s study
notes that research shows that most people do not make a report when
they are scammed, so actual losses suggested to be substantially
greater. 

Cryptocurrency has some key traits that
make it attractive to scammers: It is relatively unregulated and
difficult to recoup once lost; it is wildly popular, fueled in part by
celebrity endorsements; and it is not well understood by the general
public. The study states that the cryptocurrency market offers new
opportunities for tried-and-true investment frauds such as Ponzi schemes
and fraudulent ICOs (initial coin offerings), particularly given the
development of new currencies and the lack of protections that
government regulation has made available to more traditional investors.  

Many victims report that after purchasing
cryptocurrency, they were directed to websites where they had to create
an account in order to monitor their investments. The websites are
sophisticated, with many offering live customer service chats. But
victims who want to withdraw their “earnings” are told they must
contribute more money to cover taxes, commissions, or other fees.
Ultimately, they can never withdraw money.. 

A consumer told BBB that she began
learning about Bitcoin investing in the summer of 2021, reaching out via
WhatsApp to an investing service she saw mentioned repeatedly in the
comments of a YouTube video about Bitcoin. The woman was instructed to
buy $1,500 in Bitcoin via CashApp; 10 days later, she received a
screenshot displaying an account balance of more than $7,300. However,
when she decided to withdraw her earnings, she was told to pay a 10%
commission and a broker’s fee of more than $800. After she paid both,
she received an email instructing her to pay an additional sum of nearly
$1,200 to withdraw her money. She concluded it was a scam and reported
it to BBB. 

BBB Scam Tracker data shows that
cryptocurrency scams most commonly originate on social media, with the
FTC noting that 25% of crypto fraud reported in 2021 began on social
media. Scammers may impersonate a victim’s friends to tell them about
their success in crypto investing, or they may make Facebook posts
promising big gains. 

Cryptocurrency figures prominently in
other scams as well. Law enforcement and BBB report that romance
scammers have begun convincing their victims to invest in cryptocurrency
via sophisticated fake apps, disappearing with the money when the
victim attempts to withdraw proceeds. Ransomware scams also demand
cryptocurrency as payment in many cases, BBB’s study notes. BBB Scam
Tracker data shows that cryptocurrency also is a commonly requested
payment method in fraudulent online sales, advance fee loan scams,
employment scams, extortion scams, government impostor fees and more.
Illicit transactions on the so-called dark web are often conducted using
cryptocurrency, and it is used in money laundering. 

Law enforcement agencies have pursued
cases involving large cryptocurrency losses and the use of
cryptocurrency in criminal activity. The U.S. Department of Justice has
made arrests this year in cases involving billions of dollars in
cryptocurrency laundering.  

Tips to avoid cryptocurrency scams: 

1. Guard your wallet.
   If you buy cryptocurrency, the security of the wallet is of prime
   importance. If you lose the key, then your funds are gone permanently.  
2. Look carefully at email addresses and website addresses. Phishing
   scams often try to trick people into logging in and then capture the
   log in credentials. Those then can be used to steal money. Looking for
   an exchange with an internet search engine may lead to fake sites which
   advertise and impersonate real companies. Be especially careful when
   viewing these on a phone. 
3. Do not pay for products with cryptocurrency.
   Be careful if someone asks you to pay with Bitcoin or another
   cryptocurrency. No one with the government will ever ask for this form
   of payment. 
4. Beware of fake recovery companies. Scam companies sometimes claim that they can recover stolen money – for a fee. These are usually scammers.
5. Watch out for fake reviews. Scammers often create fake reviews for their own companies.
6. Be wary of celebrity endorsements.
   It can be tempting to rely on a prominent figure who has invested in
   cryptocurrency. But those endorsements are often not authorized and even
   if they are, the celebrity may be paid for the effort and may not know
   more about it than you do. 
7. Be careful about claims made on social media. This is the most common place for people to encounter investment scams. 
8. Be wary of “friends” who reach out to you on social media and tell you how they made money with cryptocurrency. Accounts are frequently compromised. Call your friend by phone to see if it is really them. 
9. Only download apps from Google Play or the App Store. Trusted
   app stores do not eliminate the threat of app scams, but they do offer a
   basic level of protection. Be careful with apps. Some contain malicious
   software. 
10. Do not believe promises of guaranteed returns. No one can guarantee how an investment will perform. 
11. Seek help and support. Cybercrime Support Network offers a free, confidential support program for romance scam survivors. 

Recommendations for industry and regulators: 

1. Social media should do more to:  
   Prevent hijacking of profiles Stop scam advertisements for cryptocurrency investment schemes  Prevent the illegal use of celebrity names to promote cryptocurrency scams 
2. Prevent hijacking of profiles 
3. Stop scam advertisements for cryptocurrency investment schemes  
4. Prevent the illegal use of celebrity names to promote cryptocurrency scams 
5. Regulators should carefully monitor Bitcoin ATMs to prevent use by scammers. 
6. BBB, media, trade groups and government agencies should continue to educate the public about risks.
7. U.S. Department of Treasury and security regulators should provide stringent oversight and regulation of cryptocurrencies. 

Where to report a scam or register a complaint: 

1. Better Business Bureau — file a complaint with your local BBB at BBB.org if you lost money or report a scam online at BBB.org/scamtracker.  
2. Federal Trade Commission (FTC) — file a complaint online at reportfraud.ftc.gov or call 877-FTC-Help.  
3. Internet Crime Complaint Center (IC3) — file a complaint online at ic3.gov/complaint and include: 
   All transaction IDs  Where you sent your crypto from (private wallet, account at exchange X, etc.)Where you believed you were sending your funds (perpetrator’s private wallet, arbitrage account, etc.) Any details regarding the scam and scammers.
4. All transaction IDs  
5. Where you sent your crypto from (private wallet, account at exchange X, etc.)
6. Where you believed you were sending your funds (perpetrator’s private wallet, arbitrage account, etc.) 
7. Any details regarding the scam and scammers.
8. Canadian Anti-Fraud Centre — file a report online at antifraudcentre-centreantifraude.ca or call 1-888-495-8501. 
9. U.S. Securities and Exchange Commission — SEC.gov/tcr