The SEC’s Office of Investor Education and Advocacy has issued an alert to investors, warning about the increasing use of crypto assets in scams targeting retail investors. Crypto assets, which include cryptocurrencies, coins, and tokens, are being exploited by fraudsters looking to capitalize on their popularity, according to the regulatory body.
Fraudsters often resort to technological innovations to perpetrate their scams, and investments related to crypto asset securities are no exception. “Despite ongoing efforts by federal and state regulators to combat these frauds, recovering stolen money remains a challenge,” the statement says.
Fraudsters use advanced technologies to hide their identity and the trail of funds, often sending them overseas, which makes recovery difficult, the statement adds.
The most common strategies used by fraudsters are (i) contacting through social media and text messages, (ii) exploiting emerging technologies, (iii) impersonating trusted sources, (iv) “pump and dump” schemes, and (v) demanding additional costs. The SEC explains in more detail how they operate in each case.
Contacts on Social Media and Text Messages: Scammers often initiate contact with potential victims on social media platforms, dating sites, and messaging apps, or through unsolicited text messages. They pretend to be friends of the victim or claim to have contacted them by accident, gaining their trust before disappearing with the invested funds. This type of scam, known as “pig butchering,” involves creating a fake friendship or romantic relationship to convince the victim to invest.
Exploitation of Emerging Technologies: The growing popularity of artificial intelligence (AI) is used as a lure to attract investments in crypto assets. Scammers use AI-related terms and claim to use bots to find the best investments, but their real goal is to steal investors’ money. Additionally, they use AI to create realistic websites and marketing materials, as well as deepfakes of celebrities or government officials to deceive investors.
Impersonation of Trusted Sources: Communications that appear to come from government agencies, including the SEC, can be forged by scammers. Using AI technology, scammers can impersonate friends or family members, posting messages from hacked accounts to promote fraudulent investments. It is vital to verify any investment offer, even if it appears to come from a reliable source.
Pump-and-Dump Schemes: In these schemes, scammers promote crypto assets, including “memecoins,” on social media to artificially inflate their price. Once the price rises, the promoters sell their assets for a profit, leaving other investors with significant losses when the price drops abruptly.
Demand for Additional Costs: Scammers may demand the payment of additional costs, fees, or taxes to allow the withdrawal of funds from an investment account. This advance fee fraud tricks investors into paying more money with the false promise of recovering their investment. They may also request refunds of money supposedly deposited by mistake, or deceive investors who have already lost money by promising to help them recover their funds, only to scam them again.
Precautions for Investors
To protect themselves from these frauds, the SEC recommends not making investment decisions based on advice from people known only online or through apps. Do not share financial or personal information, and verify the legitimacy of any investment offer, especially those that require the use of crypto assets to make payments. Staying informed and cautious is key to avoiding falling into the complex strategies of scammers.
For Claudia Robledo