Cryptocurrency Nightmares

BY JOSEPH AMATO

From the disastrous FTX Super Bowl ads to Bitcoin ATMs, cryptocurrency has become mainstream. Year over year, the level of crypto scams has jumped exponentially in both the number of fraudulent transactions and dollar amount lost. In 2021, cryptocurrency had a record-breaking year where crypto scammers took $14 billion worth of cryptocurrency from unsuspecting investors … nearly twice the $7.8 billion taken by cryptocurrency scammers in 2020. It is estimated that the 2021 number will be eclipsed in 2022 as the scamming population becomes more sophisticated and their methods bolder to attract the vulnerable members of the investor class.

The possibility of you becoming a crypto scam victim is greater in 2023 than ever due to Blockchain’s technical aspects and the lack of much-needed financial regulation, government oversight, and common sense.

Many types of crypto scams have evolved over the past years. These scams can come in many forms. The individual attempting to invest in this arena or be influenced by others to invest in cryptocurrency is always susceptible to any scam or fraudulent activity.

Cryptocurrency scammers are especially attracted to the decentralized financial system [“DeFi”] nature of these transactions without bank or government oversight or a centralized authority or regulations. Because Blockchain transactions are irreversible without any possible means to retrieve illicit fund transfers, and crypto users interact through wallet addresses, not their legal names, it is nearly impossible to track down specific users, allowing them to slide into the unknown easily.

There are crypto-only payment demands often fraudulent and untraceable once the money has been transferred, leaving the actual goods or services unpaid because the money was rerouted to another account.

Every second of every day, various fake identities are established, and in a decentralized platform, there is no way to distinguish between an honorable crypto participant and a thief. The cryptocurrency investment method can be used to launder money by purchasing cryptocurrency with dirty money and then reselling the crypto to earn legitimate returns to the originator. Some elements within the Blockchain verification process attempt to curb this illegal activity, yet, their efforts are not ironclad and fall short of complete satisfaction due to the very nature of cryptocurrency itself.

Other scammers use the introduction of digital collectibles or games, attracting investors to purchase a newly minted coin or token for an online game and driving up the price. Then the scammer will immediately sell their initial holdings and disappear, leaving all the investors with a collapsed crypto vehicle and absolutely no way to recoup their investment funds that disappeared into nothingness.

This method is also used to establish other investment scams whereby new coins are introduced into the crypto marketplace as initial coin offerings (ICO) with the promise of unbelievable returns and profits. In the end, as the money is placed into a digital wallet that has been compromised, the “rug pull” or the “pump and dump” process begins until all the cash is vanquished and the coin is rendered worthless.

Not to be outdone, the scammers will use dating apps to attract individuals to “invest” in their collective future by putting money into cryptocurrency trading accounts and using the profits to travel together, purchase assets together and eventually save the profits to marry. The level of sophistication is not profound, and the scammer will use their profitable results from various trading platforms to attract the victim’s attention. They will share their information about robust returns on investment to evidence their significant profits.

Many will share stories of financial calamities, business losses, and personal hardships faced during Covid and how these investments allowed them to recover their losses and become independently self-sufficient. After long romantic conversations, flowery words, and promises for the future, the victim sends thousands, tens of thousands, or hundreds of thousands into these joint or separate trading accounts on various trading platforms. They begin to trade together and watch the profits grow in a series of transactions meant to increase the size of the fund exponentially. Once the fund reaches a certain point, the scammer and the victim decide to cash out of the fund, and the selected trading platform gets more intimately involved in the scam.

The first alarm bell should go off when the trading platform demands payment for taxes and conversion fees. At this point, the victim is asked to pay taxes and fees on the amount in the portfolio (not just the profits) and the money needs to be sent through the original crypto exchange used to open the trading account in USDT format so it will eventually be hard to trace in the future. Once the taxes and fees have been paid, the trading platform will most likely go dark, and the scammer will block the victim from whatever dating app and/or social media account they met on. If the trading platform does not go dark, it will give the victim various excuses and explanations why the victim will never receive its investment or profits.

It is an embarrassing situation that has cost the victim personally and financially. The consequences could be disastrous if the victim invested more money than she could afford because the victim was thinking romantically—not rationally. This type of scam accounts for almost 20% of all crypto and digital scams that occur annually.

The crypto scammer will also utilize the Ponzi Method in both the cryptocurrency marketplace and foreign currency markets and exchanges. FTX may be a type of Ponzi scheme whereby those individuals in charge constantly needed to attract new investors to pay for their obligations to older investors. Or, in this case, to cover the losses of bad investments made with the initial funds brought into the company and not intended for outside investment. The king of all Ponzi schemes was Bernie Madoff, who misappropriated $64.8 billion in investment funds and defrauded thousands of investors as a legitimate stock trading company. One can only imagine the damage he could have possibly done in the world of cryptocurrency.

It is difficult to tell how the crypto scammer and the trading platforms interact to provide consistent profits and no losses during the transactional process. The entire scam depends on the victim witnessing consistent growth in trading profits and coin values, intended to incentivize the victim into buying more coins and investing more money into the trading platform.

Interestingly, the crypto scammer victim represents people of all ages. Young adults to middle-aged individuals, ages 20 to 49, are more than three times likely as older age groups to have reported losing cryptocurrency to a scammer. Yet, one assumes that the younger crowd is more likely to report a scam and the older group is more likely to be embarrassed and not sophisticated enough to report one.

The red flags are prevalent and consistent and should always be at the forefront of any cryptocurrency investor or potential victim. Always remember that only a scammer will guarantee a profitable investment and substantial returns on investment; no legitimate business entity or individual should require payment in cryptocurrency, and never mix online dating and investment advice as a precursor to establishing a relationship.

Finally, if you have fallen victim to a cryptocurrency scam, it is essential that you report the activity and provide as much supporting documentation as possible. Believe me; these scammers are working the system with many potential victims on the hook at the same time. Understand that reporting these scammers to the authorities may save someone else from the same fate.

I will tell you that the crypto exchange or crypto wallet you use will not be any help or assistance. The crypto exchange will claim that they cannot track or trace any transaction and therefore cannot assist you with your losses. Other than the crypto exchange, divisions within the Securities and Exchange Commission, The Federal Trade Commission, Commodity Futures Trading Commission, Internet Crime Complaint Center, and your local and statewide law enforcement agencies will collect your information, document the crime, and assist where possible.

Ultimately, you must protect yourself and never trust anyone else with your investment but a licensed and trained professional. I don’t want you to lose a penny to these crypto scammers.