Cryptocurrency Fraud

Social media is a hot spot for perpetrators of investment scams: Many people who reported losing money to a scam involving crypto said it started with an ad, post or message on a social media platform, according to the FTC. But, despite cryptocurrency’s high-tech gloss, many of the related scams are just newfangled versions of classic frauds. For example:

• “Celebrity” endorsements. Criminals posing online as billionaires or other big names promise to multiply your investment in crypto but instead pocket what you send.
• Pump-and-dumps. Using messaging apps or social media, crypto promoters plant rumors that a famous mogul is backing a certain currency. The aim is to convince investors to buy, driving up the price. The promoters then sell their stake, causing the currency’s value to plummet.
• Ponzi schemes. Some crooks peddling crypto create the illusion of big returns by paying off old investors with new investors’ money. Four founders of a supposed cryptocurrency investment platform called Forsage were recently indicted in Portland, Oregon, and accused of running it as a pyramid scheme. They took in $340 million from people around the world while promoting Forsage on social media as a legitimate, low-risk investment opportunity.
• Romance scams. Crooks persuade people they meet on dating apps or social media to invest or trade in virtual currencies. The FBI’s Internet Crime Complaint Center (IC3) fielded more than 19,000 reports of crypto-focused romance scams in 2022, with losses of nearly $740 million.

Another scam involves fraudulent sales pitches for “IRS approved” individual retirement accounts in cryptocurrencies. There are also straight-up hackers who break into the “digital wallets” where people store their virtual currency.

Crypto has also crept into everyday impostor scams, with criminals posing as government or lottery officials demanding payment in virtual currency for supposed debts, bills or prize fees, directing their targets to crypto ATMs and walking them through the transaction.

Warning signs

• Someone you don’t know sends you a message out of the blue about a virtual currency investment opportunity. 
• The pitch claims that the investment involves no risk and surefire profits.
• A call, text, email or social media message claiming to be from a government agency, utility or other official body seeks a crypto payment to cover a bill, debt or fee.

 How to protect yourself from this scam

• Understand the risk. The virtual currency trade is speculative and volatile. As the FTC notes, “An investment that may be worth thousands of dollars on Tuesday could only be worth hundreds on Wednesday.” 
• Resist pressure to buy right now. Criminals often try to create a false sense of urgency around a supposedly red-hot cryptocurrency.
• Check out any dealer in virtual currency options or futures contracts before you buy. The U.S. Commodity Futures Trading Commission (CFTC) has a tool for running an online background check. 
• Thoroughly research any virtual currency platform or digital wallet provider before providing any credit card information, wiring money or disclosing sensitive personal data.
• Carefully read any agreement with a digital wallet provider. Unlike banks and credit card companies, they might not accept responsibility for replacing your money if it is stolen, the Consumer Financial Protection Bureau warns. 
• Don’t invest in or trade virtual currencies on the advice of someone you’ve only dealt with online, whether it’s an anonymous tipster on social media or a supposed romantic partner. And certainly don’t make cryptocurrency payments in response to threats over bills or promises of a prize.
• Don’t put money into an individual retirement account advertised as “IRS approved” or “IRA approved.” Some self-directed IRAs do allow investment in virtual currencies, but the Internal Revenue Service does not approve or review IRA investments. 
• Never share your “private keys” — the long letter-and-number codes that enable you to access your virtual currency — with anyone. Keep them in a secure place.

More Resources

• If money was stolen from you through a virtual currency scam, report it to your local police. If they resist taking your report, persist so that you have a record of the loss. 
• Also report it to the FTC at ReportFraud.ftc.gov. To learn more, check out the FTC’s additional guidance at ftc.gov/cryptocurrency.