The US Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy has issued a stark warning to investors about the rising use of cryptocurrency in sophisticated scams.
These frauds capitalize on the burgeoning popularity of crypto assets, including cryptocurrencies, coins, and tokens, which are now a prime target for malicious activities.
According to the SEC, despite robust efforts by federal and state regulators to curb these activities, the complexity of the scams makes recovering stolen funds exceedingly difficult.
Scammers employ cutting-edge technologies not only to anonymize themselves but also to obscure the money trail often leading overseas, complicating the recovery process.
Most Common Strategies Used by Fraudsters
Among the most prevalent tactics employed by these con artists are initiating contact through social media and text messages, leveraging emerging technologies, impersonating trustworthy entities, orchestrating “pump and dump” schemes, and demanding additional hidden costs.
The SEC detailed that scammers often approach potential victims on social platforms, dating sites, and through direct messaging apps, engaging in what is known as the “pig butchering” scam.
Here, the fraudster builds a fake personal relationship, either friendly or romantic, to manipulate the victim into making an investment.
Emerging technologies, like artificial intelligence, are also exploited to create realistic but fraudulent investment opportunities. Scammers might use AI to simulate credible websites, produce deceptive marketing materials, or even generate deepfake videos of celebrities endorsing fake products.
They also mimic communications from credible sources, including government agencies like the SEC itself, using sophisticated technology to make their claims appear legitimate.
Furthermore, in “pump and dump” schemes, fraudsters inflate the value of certain cryptocurrencies with aggressive promotion, only to sell off their holdings at a peak before the artificially inflated price collapses, leaving other investors with significant losses.
Another common fraud involves the demand for additional payments, where victims are enticed to pay supposed taxes, fees, or charges to access their funds or secure nonexistent profits. Victims may even be re-targeted by offers to help recover previous losses, only to be defrauded again.
Canadian “Crypto King” Arrested for Fraud
The recent warning from the SEC comes as regulatory agencies around the world are trying to tackle crypto-related scams.
Just earlier this month, two Canadian men, Aiden Pleterski and Colin Murphy, were arrested and charged with fraud in connection with an alleged crypto and foreign exchange investment scheme that swindled investors out of $40 million CAD (approximately $30 million).
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In another similar incident, Chinese authorities knocked down an illegal operation involving underground banks and virtual currencies, exposing a staggering $300 million crypto fraud. The investigation led to the arrest of six individuals suspected of engaging in criminal activities related to money laundering between China and South Korea.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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