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If you are using the internet, you have probably come across at least one of the scams used by crooks to deceive victims. There is “cat fishing” and other online dating scams, where crooks use false identities to trick victims into sending money. There are also “grandparent scams,” where typically elderly victims are tricked by those posing as their grandchildren into sending them money for a bogus emergency. The recent rise in popularity of cryptocurrency has seen fraudsters change old scams and come up with a new one: cryptocurrency investing programs. And the Federal Trade Commission and state AGs are taking action to warn the public and minimize the harm to consumers from this new twist.
Crypto scams
The North Dakota Attorney General’s Office said citizens of the state have fallen for traditional scams, including romance scams and grandparent scams, but victims are urged to pay in cryptocurrency, like bitcoin, instead with fiat currency.[1] Three Michigan regulators – the Attorney General, the Department of Licensing and Regulatory Affairs, and the Department of Insurance and Financial Services – have jointly sounded the alarm bells urging consumers to protect themselves when using (or investing in) cryptocurrency.[2]
Beyond traditional schemes that prey on the most vulnerable, cryptocurrency investment schemes target both unsuspecting individuals and sophisticated investors. Some scammers make “Initial Coin Offerings” (ICOs) which work much like a company’s initial public offering. Instead of stocks, however, the crooks are offering the public digital tokens, claiming they will use the funds to create the latest and greatest cryptocurrency. Unfortunately for the victims, however, bidders sometimes take investor money only to disappear without a trace.
These crypto investment scams were fostered by conditions conducive to fraud: impressive increase in the value of cryptocurrencies[3], a lack of regulation and one of the defining characteristics of cryptography – anonymity.
Damage caused
The crooks have carried out cryptocurrency fraud on an impressive scale. According to the latest Federal Trade Commission report,[4] victims lost over $ 80 million from October 2020 to March 2021 alone. While traditional internet scams have targeted elderly or lonely singles and singles, the victims of cryptocurrency investing programs are predominantly men and women in their 20s and 30s. One hypothesis of the disparity is the inherent mistrust of digital currency by older groups, while younger age groups, who have grown up alongside repaid advances in technology, are more likely to consider crypto. -currencies as a prudent investment.
Our opinion
State and federal consumer protection agencies focus on the risks created by cryptocurrencies. For companies involved in this space, we recommend taking proactive steps to reduce the risk of a government investigation – given that, even here, an ounce of prevention is better than a pound of cure.
[1] See https://www.kxnet.com/news/cryptocurrency-scams-a-new-twist-on-an-old-attempt-to-steal-your-money/.
[2] See https://www.michigan.gov/ag/0,4534,7-359-92297_47203-562264–m_2017_1,00.html.
[3] From October 2020 to March 2021, the price of bitcoin jumped 450% to almost $ 59,000, while dogecoin jumped 933% during the same period.
[4] This spotlight is based on consumer reports to the FTC or any Consumer Sentinel Network data contributor.
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