Crypto Scams Were Investors Biggest Foe in 2023
Published On: May 3, 2024

Cryptocurrency fraud wasn’t just on the rise last year. It was the number cause of investor headaches. According to the FBI’s 2023 Internet Crime Report, investment losses related to crypto scams sky-rocketed from $2.57 billion in 2022 to $3.96 billion the following year. This 53% increase is understandably alarming. But, perhaps more frightening is the fact that these numbers only account for crimes reported to the Internet Crime Complaint Center (IC3) in 2023. Through infiltrating other cybercrime infrastructures, the FBI found that only about 20% of internet crime victims report to law enforcement.

The success of crypto fraud is due, in part, to the growing sophistication of these schemes. As outlined in the FBI’s Public Service Announcement from March 14, 2023, scammers use social media, dating apps, professional networking sites, and other messaging platforms to seek out their victims. They will then use social engineering to forge a relationship and build trust. Eventually, the scammer will introduce the topic of cryptocurrency, claim they found great financial success and convince victim that they too can make a lot of money by investing.

The manipulation does not stop there. The scammer will then coach the victim through the investment process, provide them with fake websites and apps to purchase the crypto, and present them with fake profit reports to entice them to buy more. When the victim attempts to withdraw the funds, they are required to pay taxes and fees to complete the transaction but ultimately never receive any money back. Ultimately, the victim is left penniless, and the scammer moves on to another target.

Beware of the Rise of ‘Play-to-Earn’ Scams and NFT Frauds

There are multiple iterations of this type of scheme, one being “play-to-earn” games. The grift starts with the scammer contacting and forging a relationship with their victim. Once trust is built, the scammer will introduce their target to an online or mobile game where the user can earn cryptocurrency rewards by interacting with the game, like mining for gold or growing crops on a farm.

To participate, the victim is directed to create a crypto wallet on a specific platform, buy cryptocurrency, and join the game. The user then believes they are receiving rewards for playing the game and storing money in the wallet. When the user stops depositing money, the wallet is then drained of funds by a program that is activated when the user signs up. The perpetrators then charges the victim additional taxes and fees to recover the funds, which ultimately never happens.

Investors interested in Non-Fungible Tokens (NFTs) have also been hit with losses due to similar scams. In August 2023, the FBI warned of impostors posing as NFT developers reaching out to internet users interested in investing. This scheme is tricky to identify by even the savviest users. The scammers will either hack into a legitimate NFT social media account or create an almost identical copy.

They will then post fake advertisements for limited supply or surprise NFTs and include a link to a fake website. Upon clicking on the link to the seemingly legitimate site, the victim would be prompted to connect their crypto wallet, believing they can now buy the rare NFT. Instead, they’ve triggered a piece of code called a drainer smart contract, which gives the scammer authorization to transfer all of the victim’s cryptocurrency out of their wallet.

Heightened Risks in Crypto Investment and Crypto Scam Prevention Efforts

It is important to note that while these scams are highly developed and elaborate, they are not foolproof. Part of the success of these scams is due to the lack of proper security infrastructures on the part of these cryptocurrency platforms. As crypto continues to grow as a legitimate form of investment, so will the sophistication of these scams. The digital currency market is still largely unregulated. The argument for robust frameworks designed to combat these scams is ongoing, but actual implementation of regulations and enforcement isn’t moving fast enough.

It is imperative that modern investors stay vigilant when it comes to putting their money in crypto. The FBI recommends reporting suspected scams to the Internet Crime Center. A majority of victims of cybercrimes do not report to law enforcement, resulting in many scammers flying under the radar. Cryptocurrency platforms, like Coinbase, also have a responsibility to protect their customers from bad actors. Unfortunately, crypto platforms are not only failing in protecting potential victims but have proven to be no help when someone reports their accounts hacked and their funds stolen.

Coinbase is an example of such a platform. Users who’ve reported their accounts hacked and funds stolen have experienced long wait times for a response from Coinbase’s customer service team. While waiting for resolution, many users are unable to access their accounts as Coinbase will immediately lock access. All correspondence is by email and it may take weeks, even months, to receive any update about the status of the victim’s funds.

The attorney’s at Stoltmann Law Offices have successfully represented hundreds of victims of crypto currency scams. If you were a victim of a crypto fraud, you may have a claim. Call Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation, initial consultation with an experience arbitration attorney. We are a contingency fee based law firm with means we do not get paid unless you do.

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