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Top 10 Crypto scams to look for in 2023

Terri Luttrell, CAMS-Audit
January 4, 2023
Read Time: 0 min

Guidance for banks on the lookout for crypto scams and fraud

The turbulent cryptocurrency scene should put bankers on high alert. The FTC's top ten scams to watch for can help. 

You might also like this whitepaper, "Understanding cryptocurrency."

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Introduction

Increased crypto use means increased crypto scams

Although yet to be considered mainstream by most, cryptocurrency as an investment and payment method has become more commonplace. But with increased popularity comes more opportunity for fraud. The Federal Bureau of Investigation (FBI) states that crypto is becoming the preferred payment method for many types of scams—and not just on the dark web, where crypto is used to fund illegal activity. 

Growing popularity

Crypto market a perfect environment for fraud

According to CNBC, one in five Americans has used crypto, representing approximately 59 million people. Of that group of users, the Federal Trade Commission (FTC) reports that since the beginning of 2021 through the first quarter of 2022, more than 46,000 people have reported losing over $1 billion in crypto scams. That's one out of every four dollars reported lost—more than the amount lost through any other payment method.

U.S. banking regulators recently warned financial institutions that dealing with cryptocurrency exposes them to an array of risks.

"The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector," read a joint statement from the Federal Reserve, FDIC, and the OCC. The comments come just weeks after the spectacular collapse of crypto exchange FTX.

The regulators said the risks include: "fraud and scams among crypto-asset sector participants" and "contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants."

There are several reasons why cryptocurrency markets allow fraud to flourish:

  • There is no bank or centralized authority to flag suspicious transactions and attempt to stop fraud before it happens, as there is with fiat currency.
  • Crypto transfers cannot be reversed – once the money is gone, users cannot get it back even if they report a fraudulent transaction.
  • Many people are still unfamiliar with how digital currency works, leading first-time users to fall victim to scams due to a lack of understanding.

Top 10 crypto scams

Crypto scams to watch for in 2023

According to the FTC, the top ten crypto fraud trends to watch in 2023 are:

Investment scams: Investment scams come with "get rich quick" and "no risk" promises, often initiated through social media or online dating apps. In these scams, crypto can be the investment offered or the payment method. The invested crypto goes straight into the scammer's wallet.

Romance scams: Romance scams prey on relationships and can have both an investment and payment angle. After gaining a user’s trust, the perpetrator pretends to have wealth and sophistication and casually offers investment tips to get their scheme rolling. Once a rapport is established, the victim is asked for and may send crypto to the scammer.

Business, government, or job impersonation scams: In a business, government, or job impersonation scheme, the perpetrator presents themselves as a trustworthy online source, such as Amazon, FedEx, or a user’s bank, and convince users to send them funds by buying crypto. The crypto offered for sale by the scammer is often fraudulent.

Rug pull scams: So-called rug pull scams are when investment scammers propose a new crypto opportunity or nonfungible token (NFT) that requires funding. After the project initiators receive payment, they disappear, leaving their investors no avenue to get money back.

Phishing scams: Phishing scams use emails with malicious links to gather personal details, such as users’ crypto wallet key information. If they obtain enough information, the scammer can gain unfettered access to victims’ crypto. This type of fraud can also be perpetrated via text message in a method known as “smishing.”

Social media scams: The FTC reports that half of those who have reported crypto losses since 2021 said the scam began with an ad, post, or message on social media. The most identified platforms used were Instagram, Facebook, WhatsApp, and Telegram.

Ponzi schemes: Ponzi schemes via cryptocurrencies work the same way they do with traditional payment methods. Scammers collect funds from new investors in order to pay the older investors, creating no legitimate investment opportunity and leaving investors with no recourse.

Upgrade scams: Crypto platforms are a form of software that, at times, requires upgrades. Consumers are accustomed to upgrades as part of innovative technology. They can easily be scammed into giving up their private keys as part of an "upgrade" that turns out to be fraudulent.

SIM-Swap scams: SIM-swap scams occur when someone obtains a copy of your cellphone's SIM card to access your phone data. With a user’s data in hand, scammers can the steal two-step authentication codes required to open their crypto wallet, allowing the scammer access to account funds and information.

Fake crypto exchanges and crypto wallets: Inexperienced crypto users may be lured into investing in a new high-value cryptocurrency exchange opportunity or a "cheap" Bitcoin that doesn't exist. Scammers advertise the investment at a price under market value, and the victim is unaware that the exchange is fake until their investment is lost. A fake crypto wallet is a malware scam that infects a computer and eventually steals the user's private key.

Stay up to date with best practices for the digital asset space.

The potential for cryptocurrency to be tied to illicit activities means companies and financial institutions dealing in cryptocurrency should be on the safe side. 

Stay in the know

Red flag guidance

The Financial Crimes Enforcement Network (FinCEN) regulates all virtual currencies for anti-money laundering and countering the financing of terrorism (AML/CFT) programs. The U.S. Securities and Exchange Commission (SEC) governs crypto assets that could be considered securities. When educating yourself or your clients about potential fraud, consider using these red flag tips from the FTC to protect against becoming a victim:

  • Only scammers will guarantee profits or significant returns. No crypto investment is guaranteed to make money, let alone big money.
  • No legitimate entity will require you to buy crypto. Not to solve a problem, not to protect your money. That's a scam.
  • Never mix online dating and investment advice. If a new love interest wants to show you how to invest in crypto or asks you to send them crypto, be wary of a scam.
  • No legitimate business or government will ever email, text, or message you on social media to ask for crypto. Legitimate fundraisers will never demand that you buy or pay with crypto.
  • Never click on a link from a random text, email, or social media message, even if it seems to come from a company you know.
  • Don't pay anyone who contacts you unexpectedly, demanding payment with crypto. Urgency is a red flag.
  • Never pay a fee to get a job. If someone asks you to pay upfront for a job or says to buy crypto as part of your job, it's a scam.

Be prepared

Mitigating Risk

Crypto scams are not unlike other types of fraud, and the same red flags and deterrence can be used to avoid falling victim to a scam. Of course, crypto is not insured by the Federal Deposit Insurance Corporation (FDIC) and is a risky investment. Coupled with the ease with which scammers can successfully victimize consumers, it's best to be prepared and diligent in any digital investment or other transaction. Remember, an opportunity that sounds too good to be true probably is.

Learn more about cryptocurrency and the digital asset space.

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About the Author

Terri Luttrell, CAMS-Audit

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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