Scammers cashing in on crypto mania

Such is the allure of cryp­tocur­ren­cies that investors are act­ing in ill-judged haste, hop­ing to make a fast buck. Accord­ing to the UK’s fraud report­ing ser­vice, Action Fraud, British investors lost £113m to cryp­to scam­mers last year, up from £77m in 2019.

Dur­ing the six months to May 2021 – a par­tic­u­lar­ly fre­net­ic peri­od in an already febrile glob­al cryp­to mar­ket – fraud­sters imper­son­at­ing Elon Musk are thought to have pock­et­ed more than $2m. Oth­er scams have used dat­ing web­sites to entice unwary vic­tims through the false promise of romance. The long-dis­tance new love men­tions a ‘good’ cryp­to invest­ment oppor­tu­ni­ty and their lovesick mark parts with their cash.

Fraud­sters typ­i­cal­ly cre­ate cred­i­ble-look­ing online ads and web­sites and send pro­fes­sion­al-sound­ing emails to adver­tise sham invest­ment oppor­tu­ni­ties. Fake tes­ti­mo­ni­als are often accom­pa­nied by a pic­ture of a well-known and trust­ed pub­lic fig­ure to lend legit­i­ma­cy.

Cryp­tocur­ren­cy exchanges, many of which remain unreg­u­lat­ed but offer an impor­tant plat­form for buy­ing and trad­ing dig­i­tal assets, are par­tic­u­lar­ly sus­cep­ti­ble to scams. Crim­i­nals have manip­u­lat­ed trad­ing vol­umes on seem­ing­ly rep­utable exchanges to tempt poten­tial investors and fleece them of their funds. Some have even set up fake cryp­to exchanges. These may harass users, deny cryp­to with­drawals, charge exor­bi­tant fees or sim­ply take the entire invest­ment.

Susan­nah Streeter, senior invest­ment and mar­kets ana­lyst at FTSE-100 finan­cial ser­vices com­pa­ny Har­g­reaves Lans­down, notes that the scale of cryp­to fraud in the UK has become clear from the lat­est fig­ures from the Adver­tis­ing Stan­dards Author­i­ty. These show that about 95% of all scam alerts cur­rent­ly received by the watch­dog relate to bit­coin.

“Many of the cryp­to scams flood­ing the mar­ket promise to dou­ble a customer’s returns or offer give­aways in the cur­ren­cy, often fea­tur­ing the pro­file of celebri­ties on their ads,” Streeter says. “The only peo­ple to get rich quick from these kinds of schemes are the scam­mers them­selves.”

The sim­plest way to avoid becom­ing a vic­tim is to bear in mind that if any­one is offer­ing fast returns with­out risk, they’re scam­mers. If it sounds too good to be true, it def­i­nite­ly is.

Coun­ter­ing the fraud­sters

The Adver­tis­ing Stan­dards Author­i­ty is con­sid­er­ing reforms to its finan­cial adver­tis­ing remit to include cryp­tocur­ren­cy as one of its pri­or­i­ty areas, which may neces­si­tate new pow­ers. 

The Finan­cial Con­duct Author­i­ty (FCA) has stressed that there’s a lim­it to what it can do to crack down on online scams that are cur­rent­ly beyond its reg­u­la­to­ry scope. Since Jan­u­ary, it has required all firms offer­ing cryp­to-relat­ed ser­vices to reg­is­ter and demon­strate their com­pli­ance with anti-mon­ey-laun­der­ing rules and oth­er safe­guards. But it recent­ly revealed that only five firms have reg­is­tered so far, most of which are not yet com­pli­ant.

Video-shar­ing social net­work Tik­Tok has banned paid-for con­tent for finan­cial ser­vices pro­mo­tions, as it’s clear­ly con­cerned about the num­ber of users being duped into putting mon­ey into bogus invest­ment schemes.

There were hopes that the government’s new online safe­ty bill would be widened to cov­er inter­net scams, but at present it does not include fraud­u­lent adver­tis­ing, which means that scam­mers will con­tin­ue to slip through the legal net.

One of the most noto­ri­ous fake cryp­tocur­ren­cy exchanges was BitKRX, unmasked by South Kore­an author­i­ties in 2017. It was named to appear like the cryp­tocur­ren­cy arm of the country’s largest legit­i­mate finan­cial trad­ing plat­form, Korea Exchange (KRX). When clients who thought they had pur­chased bit­coin tried to access their funds, they dis­cov­ered that the mon­ey had van­ished.

In anoth­er cryp­to scam, exposed by a joint inves­ti­ga­tion in the UK and the Nether­lands, six peo­ple were arrest­ed for cre­at­ing a fake online cryp­tocur­ren­cy exchange that duped more than 4,000 vic­tims in 12 coun­tries out of an esti­mat­ed £19m. The scam­mers were able to access bit­coin wal­lets using so-called typosquat­ting. This tech­nique relies on acci­den­tal mis­spellings by peo­ple typ­ing the web address of an authen­tic exchange into their browsers. Vic­tims arrive at a fake web­site designed to resem­ble the site they intend­ed to vis­it. Its address may have only one let­ter dif­fer­ent from that of the legit­i­mate exchange – a small detail that’s easy to over­look, but enough to enable the crim­i­nals to do their work.

Banks tak­ing action

At the end of June, NatWest joined Bar­clays and Nation­wide in cur­tail­ing cus­tomers’ use of cryp­tocur­ren­cies. It reports that a large num­ber of scams have used social media to tar­get both retail and busi­ness bank­ing cus­tomers. The bank has tem­porar­i­ly capped the dai­ly amount they can send to cryp­to exchanges, includ­ing one of the world’s largest, Binance. The max­i­mum amount varies depend­ing on the plat­form, but is still typ­i­cal­ly a four-fig­ure sum.

NatWest is also block­ing pay­ments to a small group of cryp­to asset firms where it has seen sig­nif­i­cant lev­els of fraud. Mean­while, San­tander has told its cus­tomers that it’s stop­ping all pay­ments from them to Binance for their pro­tec­tion.

Binance insists that it takes its respon­si­bil­i­ty to shield users from attempt­ed scams seri­ous­ly, adding: “Where we are made aware of these kinds of claims, we imme­di­ate­ly take action and have an excel­lent record of work­ing with law-enforce­ment agen­cies glob­al­ly to assist in their inves­ti­ga­tions.”

Katy Worobec is an expert on eco­nom­ic crime and man­ag­ing direc­tor at UK Finance, the trade body for the finan­cial ser­vices sec­tor. She points out that each bank will have its own poli­cies for pro­tect­ing account-hold­ers look­ing to buy and sell cryp­tocur­ren­cies. 

“Most cryp­tocur­ren­cies aren’t reg­u­lat­ed by the FCA,” Worobec says. “For that rea­son, we would always urge cus­tomers to pro­ceed with extreme cau­tion before mak­ing any cryp­to invest­ment.”