If it involves money, there will be scams. That’s just the way the world works. And when you consider the largely uncharted waters of cryptocurrency, there are plenty of scams and schemes that are regularly used to bilk unsuspecting victims out of their hard-earned money. As federal and state lawmakers scramble to get ahead of the fraudsters, Innocent people are losing their life savings, to the tune of $2.3 billion in 2022 alone. The average loss from a crypto scam was around $86k.
The Cryptocurrency Conundrum
Cryptocurrency presents frustrating challenges to law enforcement for a variety of reasons. It is not the same as digital currency, and it cannot be transferred to a bank account and converted to cash because it does not go through a bank or financial institution. It uses blockchain for verification instead. Because it is taken out of the bank loop, recovery from theft is much more difficult.
The laws are lagging behind this newer technological trend. If you are the victim of a crypto scam, you will need an experienced attorney who is well-versed in cryptocurrency, bitcoin, and NFTs.
14 Common Cryptocurrency Scams
Cryptocurrency tech may be relatively new, but crooks are using many old scams and schemes to steal. They’ve found ways to use these old methods on crypto. These are some of the more common crypto scams that are being used. If many of these look familiar to you, they should. Thieves have been using them for years.
Rug Pull Scams
Investment scammers pump up an NFT token, new project, cryptocurrency, or coin in order to get funding. Once they get the funding, they disappear – with the money. The “investments” are coded in such a way that the target is not able to sell the bitcoin after purchasing it, leaving them with an investment that has no value.
“Business Opportunity” Scams
There are several ways this scam can go, but most commonly someone contacts the target offering some type of “business opportunity.” They make claims about helping the target get rich – for a bit of crypto. Other times, they convince the target to send them crypto with the promise of “guaranteed returns.” This includes doubling or even tripling their assets overnight. The truth is that “guaranteed returns” is a myth – a dangerous one if a person believes it and acts. The only one getting rich overnight is the scammer.
Ponzi Schemes
This is a very old scheme, but it is still going strong. Older investors get paid with the proceeds from new investors. The Cryptocurrency scammers use Bitcoin to lure new investors, promising big profits with minimal risk and often “guaranteed returns.” The problem is, it’s a circular scheme that never has any legitimate investments. It is all about targeting new investors to get financial gain via cryptocurrency.
Employment Offers and Fraudulent Employees
This is a very broad scamming field. Fake recruiters contact targets with the offer of an interesting job. The catch is that they must pay for the job training – in cryptocurrency. “Shadow workforce” scams are also common. Foreign scammers posing as US-based remote workers. They look for projects and gigs that involve NFTs and hack into systems or transmit documents with malicious code that allows them to steal information and crypto.
Investment Scams
The scammer contacts the target, potential or active investors, and claims to be experienced, professional “investment managers.” They entice the investors with claims of huge profits they’ve made from investing in cryptocurrency, promising the target they can help them make millions too – they just need an upfront payment to get started. And that is the last the target sees of the “investment manager.” The scammer steals the payment and disappears. In some cases, the scammer may also request personal information claiming that they need it to deposit or transfer funds. This gives them access to the target’s cryptocurrency which they steal as well. Fake celebrity endorsements and endorsements by reputable corporation names are also common tactics scammers use to draw targets in and try to make their scams seem more legitimate.
Phishing Scams
These scams have been around for many years, but they are still one of the most common. The scammer sends an email that contains a malicious link to a fake website. This website is set up to gather personal information which can include cryptocurrency wallet key information. Cryptocurrency wallet keys are not like passwords. Each digital wallet has a single, private, unique key. If that key is stolen, the owner must create a new wallet to get a new unique key. Many people are duped by this type of scam because the emails look authentic as do the websites. That is why experts caution people to never click on a link in an email.
Impersonation Scams
This is a type of giveaway scam but there are many scams that fall under this category. The crypto thief claims to be from law enforcement or a government agency, giving them credibility. The scammer convinces the target that there is an investigation or they are under investigation and as a result, their assets or accounts are frozen. They then offer an “out.” The target can resolve the issue by paying them in cryptocurrency. Other types may involve the scammer posing as the target’s bank officer, FedEx, Microsoft, or Amazon. It is all the same in the end though, they just want to steal the target’s crypto.
Blackmail and Extortion Scams
The scammer claims to have personal information about the target that is embarrassing or damaging. This can include photos, emails, videos, and even websites they’ve visited. They usually threaten to share the information with the target’s contacts or otherwise make it public unless the target makes an immediate crypto transfer to “buy” their privacy and avoid shame. The Federal Trade Commission advises potential targets to not send any money, but instead immediately report these types of scams to the Federal Bureau of Investigation.
Fake Cryptocurrency Exchanges
The scammer sets up a fake cryptocurrency exchange and lures targets by promising a very attractive exchange rate. Some even promise additional bitcoin. The target makes their deposit, and it is only then that they learn the site is fake. They lose their deposit and don’t hear from the scammer again. Check the legitimacy of crypto exchange markets and find those with a good reputation and are the real thing.
Pump and Dump Schemes
This is similar to the rug pull scheme, but it is more on the investment side of scamming. Typically a group of scammers will work together to pump a certain coin, luring people to invest in it. They often use social media as a platform for building their hype. The scammers work together to drive the price of the asset up and then they all cash out at once. The new investors are left with nothing, a worthless, completely deflated investment.
Romance Scams
A scammer finds a target and pretends to be romantically interested in them. They manipulate the target, acting like they are in love and may even talk about marriage. In truth, the entire relationship is a fraud. The scammer uses fake personal details and fake pictures to weave a web of lies that are often carried out for months as they get the target to have romantic feelings for them. Once they are sure they have the target “hooked,” they start the money part of the scam which is usually either asking them for crypto payments or investments so they can begin their lives together.
Cryptocurrency Giveaway Scams
This scam is very common on social media but can be carried out through email. The scammer contacts the target promising free crypto (or some other prize, often money) once they follow the scammer’s instructions. Often these scammers will pose as social media influencers or even celebrities to try to gain credibility, making it easier to lure unsuspecting victims. The target clicks on a link and is taken to a fraudulent site that requires “verification” to receive the prize. The verification involves making a payment to prove the account’s legitimacy – and it often includes malicious links that give scammers access to the target’s personal information, including their cryptocurrency.
Flash Loan Attack
Flash loans are loans that are given and repaid in a very short time, usually in a matter of seconds or minutes. They do not require collateral or credit checks, so they aren’t difficult for scammers to acquire. The purpose of flash loans, in legitimate trade, is to purchase crypto tokens sold at a low price on one platform and sold immediately on another platform that offers a higher price. In legitimate flash loans, it is all done in a single transaction and the loan is repaid. However, the ease of acquiring a flash loan makes it easy for scammers to manipulate and misuse. The scammers create several orders for buy and sell which give the impression that the asset is in high demand. Once the price increases, the scammers cancel the sales so that the price immediately falls. Then they buy at a lower price on another platform and make a profit.
Man-in-the-Middle Attack
The scammer waits for targets to access their cryptocurrency account in a public location. These public locations are not as secure which is why experts suggest using a VPN when logging into a crypto account. When using a public location, the scammer can steal the target’s private information such as account information, crypto wallet keys, and passwords. And it’s as simple as intercepting Wi-Fi signals on networks that the target trusts.
Red Flags of Cryptocurrency Scams
Cryptocurrency scams are very common. Most people in the industry probably encounter at least one a week – or more. There are some earmarks of a crypto scam that should send up red flags. Look before you leap. Investigate everything. If it is a legitimate opportunity, the company or individual won’t mind if you check them out – they have nothing to hide. These eight red flags should set off alarms and send you running in the other direction.
- It’s too good to be true – Unrealistic profits or rapid growth should make you suspicious, especially when they are being used to lure you into investing.
- Paying more but not getting more – You are required to pay more money before being able to make any withdrawals.
- High-pressure sales – You are bombarded with texts, emails, or calls from the company warning you that if you don’t jump in now you are going to miss out.
- Slick, good-looking website – They may look professional and even have what appears to be a celebrity endorsement but look closer. Many have boilerplate content or grammatical errors that indicate English is not their first language or they used a translator. Also, research the contact information. A search on Google of just the phone number can give you a lot of information.
- No trading experience necessary – They tell you it’s all automatic, so you don’t need to have any trading experience or knowledge.
- High returns guarantee – There is no such thing as guaranteed returns, especially high ones. Look out for unrealistic promises such as a 300% growth return. It’s fake.
- Trojan horse – If they want you to download an app on your device, that should give you pause. Scammers load their apps with malicious code that gives them access to all the files and information on your computer.
- They disappear – They ghost you when you request a withdrawal. When that happens, it’s usually too late.
Crypto Regulation, Protection, Transparency, and Oversight Act (CRPTO Act)
The State of New York has been a leader in developing some of the most stringent cryptocurrency regulations in the nation. New York Attorney General Letitia James introduced a bill, the CRPTO Act. If the bill is passed, victims of fraud could be able to get reimbursement from crypto exchanges. It also includes mandatory independent auditing of crypto companies and more transparency across the board, so investors have a better understanding of risks and other important issues.
Experts warn that 1 out of every 4 new tokens of any value are fraudulent. If you have been duped by a crypto scammer, don’t just sit back. In many cases, even if you can’t get the scammer, there are other entities that have some responsibility and can be held accountable.
The Litvak Law Firm is committed to finding justice for those who have fallen prey to cryptocurrency scams and schemes. We will fight for you and help you get justice. Call today at 718-989-2908 and schedule a case analysis then let us work for you.