If you use the internet, you have probably encountered at least one of the scams con artists use to bilk victims. There’s “catfishing” and other online dating fraud, where scammers use fake identities to woo victims into sending money. There’s also “grandparent scams,” where typically elderly victims are tricked by those posing as his or her grandchild into sending money for a faux emergency. Cryptocurrency’s recent rise in popularity has seen fraudsters put a twist on the old scams and come up with a new one: cryptocurrency investment schemes. And the Federal Trade Commission and state AGs are taking steps to put the public on notice and minimize consumer harm on this new twist.
Crypto Scams
The North Dakota attorney general’s office indicated that state citizens have fallen for traditional scams, including romance and grandparent scams, but victims are asked to pay in cryptocurrency, such as bitcoin, instead with fiat currency.[1] Three Michigan regulators — the attorney general, Department of Licensing and Regulatory Affairs, and Department of Insurance and Financial Services — have jointly sounded the alarm urging consumers to protect themselves when using (or investing in) cryptocurrency.[2]
Beyond the traditional schemes that prey on the most vulnerable, the cryptocurrency investment schemes have targeted unsuspecting individuals and sophisticated investors alike. Some fraudsters make “initial coin offerings” (ICOs) that function much like a corporation’s initial public offering. Instead of stock, however, scammers offer the public digital tokens, claiming they will use the funds to build the latest and greatest cryptocurrency. Unfortunately for victims, however, offerors sometimes take investor money only to disappear without a trace.
These crypto investment scams have been aided by conditions ripe for fraud: cryptocurrencies’ impressive increase in value[3], a lack of regulation, and one of crypto’s defining features — anonymity.
The Harms Caused
Scammers have perpetrated cryptocurrency fraud at an impressive scale. According to the Federal Trade Commission’s latest report,[4] victims lost more than $80 million from October 2020 to March 2021 alone. While traditional internet scams have targeted the elderly or lonely bachelors and bachelorettes, the victims of cryptocurrency investment schemes have primarily been men and women in their 20s and 30s. One hypothesis for the disparity is older groups’ inherent mistrust of digital currency, while younger age groups, who grew up alongside technology’s repaid advances, are more likely to view cryptocurrencies as a prudent investment.
Our Take
State and federal consumer protection agencies are focused on the risks created by cryptocurrencies. For companies involved in this space, we recommend taking proactive steps to reduce the risk of a government-led investigation — given that, even here, an ounce of prevention is worth a pound of cure.
[1] See https://www.kxnet.com/news/cryptocurrency-scams-a-new-twist-on-an-old-attempt-to-steal-your-money/.
[2] See https://www.michigan.gov/ag/0,4534,7-359-92297_47203-562264–m_2017_1,00.html.
[3] From October 2020 to March 2021, the price of bitcoin surged 450% to nearly $59,000, while dogecoin surged 933% in the same period.
[4] This spotlight is based on reports from consumers to the FTC or to any Consumer Sentinel Network data contributor.