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- Scammers build trust via social media, posing as friends or using AI to create realistic but fake websites and deepfakes.
- Fraudsters lure victims into investing in fake crypto assets, often allowing small withdrawals before demanding more funds.
- Pump-and-dump schemes and advance fee frauds exploit victims, often leading to significant financial losses.
The U.S. Securities and Exchange Commission (SEC) has issued an Investor Alert highlighting fraudsters’ methods to lure victims into scams involving crypto asset securities. This alert from the SEC’s Office of Investor Education and Advocacy aims to protect retail investors from falling prey to these fraudulent schemes.
NEW INVESTOR ALERT: 5 Ways Fraudsters May Lure Victims Into Scams Involving Crypto Asset Securitieshttps://t.co/0Ag6l8hEbj pic.twitter.com/QsmSJvui1R— U.S. Securities and Exchange Commission (@SECGov) May 29, 2024
Fraudsters frequently exploit the popularity of crypto assets, such as cryptocurrencies, coins, and tokens, to perpetrate scams. These scams are often difficult to trace and recover funds from, as fraudsters use technology to obscure their identities and hide the trail of funds. Additionally, once funds are transferred, they are often quickly moved overseas, making recovery even more challenging.
One common tactic involves fraudsters initiating contact with potential victims through social media platforms or unsolicited text messages. They may pose as an old friend or claim to have contacted the victim accidentally. These fraudsters forge a relationship, sometimes romantic, to gain the victim’s trust before convincing them to invest in crypto assets. This type of scam is often referred to as “pig butchering.”
Fraudsters may direct victims to legitimate-looking but fake websites or apps. They may even allow small withdrawals to gain trust before requesting more substantial investments. When victims attempt to withdraw their funds, they encounter excuses or demands for additional fees or taxes, leading to further losses.
The alert warns that fraudsters may use the growing popularity of technologies like artificial intelligence (AI) to entice investors. They may use AI-related buzzwords to make fraudulent crypto asset investments seem appealing. Additionally, fraudsters can use AI to create realistic websites, marketing materials, and deepfakes to deceive investors. These deepfakes can involve celebrities, government officials, or even the victim’s loved ones, making the scam appear more credible.
Fraudsters may also impersonate or exploit trusted sources, such as government agencies, organizations, and individuals. They might use AI to mimic voices and images, making distinguishing between legitimate and fraudulent communications more difficult. Even messages from friends or family members could be fake, as fraudsters can hack social media accounts to post or send deceptive messages.
Another tactic involves pump-and-dump schemes, where fraudsters promote a crypto asset, often a memecoin, on social media to inflate its price. Once the price is high, they sell their holdings, profiting at the expense of other investors. These schemes often result in significant financial losses for those who bought them based on the fraudulent hype.
In some scams, fraudsters demand additional costs to withdraw money from the victim’s account. They might claim that the account has been frozen by a regulator or that taxes need to be paid to release the funds. This is an example of an advance fee fraud. Once the victim pays the supposed fee, they will unlikely see any returns.
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