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Scams are on the rise in the cryptocurrency markets as a huge rally in bitcoin, a lack of regulation, and the anonymity of digital money have created a conducive environment for fraudsters.
Consumers said they lost nearly $ 82 million to crypto scams during the fourth quarter of 2020 and the first quarter of 2021, more than 10 times the amount in the same six-month period a year earlier, according to the Federal Trade Commission.
From October to March, the price of bitcoin jumped 450% to almost $ 59,000, while rival coins such as Ether and Dogecoin also jumped. Bitcoin has since retreated to around $ 36,000, still much higher than where it traded for the entire last year.
The crooks have targeted everyone from small investors scouring social media for investment advice to Wall Street veterans who backed an Australian cryptocurrency fund manager recently accused of carrying out a $ 90 million fraud. dollars.
Sebastian, a 28-year-old pharmacy technician, is still kicking himself after losing around $ 10,000 in ether to a crypto company whose anonymous creators disappeared in May, leaving behind hundreds of disgruntled investors.
The creators of LUB Token claimed to create a crypto exchange based on the Telegram messaging app. On their now-defunct website and in a press release circulated on several crypto websites, they touted LUB, a new cryptocurrency that promised daily returns of up to 10%.
Sebastian, who lives in a suburb of London, said he normally carefully researched crypto projects before investing, but broke his own rule and took the plunge. He made multiple deposits into a digital wallet controlled by LUB and even plugged the company into Reddit himself before. others warned him that it was a scam. By then it was too late. Unlike credit card purchases, crypto transfers generally cannot be reversed.
I’m ashamed and still can’t figure out how stupid I was, said Sebastian, who asked that his last name not be released so that he wouldn’t be targeted by internet trolls. .
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Hundreds of people with similar histories, mostly in Europe, have since joined Telegram groups such as LUB Token = SCAM !!! One administrator of a group, which uses the name Tobias, estimated that victims in Germany lost between 500,000 and 1.5 million (600,000 to 1.8 million dollars) because of the program. German police are investigating complaints about the LUB program across the country, said a spokesperson for the Aalen city police, who received a complaint in May.
It’s hard to say how much money investors are losing to crypto fraud. The FTC figures are based on self-reported scam victims and are largely confined to the United States, so they likely only reflect a slice of the total losses. CipherTrace, a blockchain analytics company that tracks crypto crime reports around the world, says fraudsters collect less than before, dropping from $ 4.1 billion in 2019 to $ 432 million in the first four month of this year. CipherTraces’ counts for 2019 and last year have been high due to the exposure of a few large Ponzi schemes in Asia.
Still, CipherTrace claims fraud is increasing in the bustling realm of DeFi, or decentralized finance. DeFi is a broad term for efforts to provide financial services such as lending, asset trading, or insurance using blockchain, the technology behind bitcoin.
DeFi projects offer returns on investors’ crypto assets far above conventional interest rates, and even some legitimate DeFi projects are managed by anonymous teams. This facilitates carpet draws, a scam in which unscrupulous operators raise money for a project, only to then escape with investor funds.
From January through April, DeFi scammers stole $ 83.4 million, more than double the volume of last year, according to CipherTrace. DeFi has exploded and there are a lot of innovative products out there, but it’s also a breeding ground for fraud, said Dave Jevans, CEO of CipherTrace.
The fraud frustrates crypto advocates who have pushed for widespread acceptance of digital currencies.
The bad guys will always follow the money, said J. Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission who now sits on the board of crypto startup BlockFi. As the industry matures and surveillance tools improve, let’s hope the cops catch up.
Even sophisticated investors can fall victim to crypto fraud. In February, crypto hedge fund manager Stefan Qin pleaded guilty to one count of securities fraud. In federal court in New York, the 24-year-old Australian confessed to lying to investors for years about the returns of his flagship $ 90 million fund, Virgil Sigma Fund LP. He now faces up to 20 years in prison.
Qin had claimed a near-perfect record of profitability, claiming that the fund achieved monthly returns sometimes exceeding 20%, by arbitrating trading using computers to exploit price differences between crypto exchanges. He was featured in a Wall Street Journal article in 2018, which repeated some of his false claims.
Qin has accepted full responsibility for his actions and vowed to do what he can to make amends, his attorneys at law firm Kaplan Hecker & Fink LLP said in a statement.
Virgil has attracted dozens of well-heeled investors, with balances ranging from $ 103,000 to $ 5.7 million, according to a court record. Two of those investors, who spoke to the Journal on condition of anonymity, are New York-area financial professionals who have worked for multinational banks.
In retrospect, both investors said they ignored a red flag: The fund has never produced audited returns, a situation Qin attributed to the nascent nature of crypto. Being at the forefront of the industry has put us ahead of regulators and accounting firms, and often there is no standard path to follow, Virgil told investors in a 2019 email.
Court records show that Qin came under pressure last year after investors sought to withdraw money from the Virgil Sigma fund. In December, Qin urgently sought to withdraw money from a separately managed sister fund, Virgil Quantitative Research, telling his employees he had to reimburse Chinese loan sharks, according to a December 22 lawsuit filed against him by the Securities and Exchange Commission.
Alarmed employees alerted the SEC, triggering Qins’ downfall, a person familiar with the matter said. An SEC spokesperson declined to comment.
One of the investors texted Qin after learning about the SEC lawsuit. In a response seen by the Journal, Qin said he could not discuss the costume. It kills me to say this, but my firm belief is that everything will be fine and the justice system will prevail, he added.
Six weeks later, he pleaded guilty.
Ruth Bender contributed to this article.
Write to Alexander Osipovich [email protected]
This article was published by Dow Jones Newswires
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