If there is a perfect storm for cryptocurrency scam victims, it’s happening right now.
Despite being highly volatile, the price of cryptocurrencies has surged to record levels.
Finally, cryptocurrency enthusiasts have a great command over social media platforms, enabling them to relentlessly plug the investment, which is pushing up prices. Scammers know that many people suffer from “FOMO,” or the fear of missing out. This is the kryptonite for unsophisticated investors.
Add all those forces together and you have a tenfold increase in reported losses in the past 12 months from victims of cryptocurrency-related investment scams, according to new data from the Federal Trade Commission (FTC).
“This trend is really striking,” said Emma Fletcher, a program analyst with the FTC’s Bureau of Consumer Protection. “It’s pretty alarming and concerning. So we definitely want to bring attention to this issue so that people can take steps to make sure that this doesn’t happen to them.”
Consumers have reported losing more than $80 million to cryptocurrency investment scams, the data shows. The FTC said it received nearly 7,000 scam reports in the last quarter of 2020 and the first quarter of 2021, 12 times the number reported over the same period a year earlier. The median amount consumers lost in the scams was $1,900. That is nearly 1,000 percent more in reported losses compared to the same period a year earlier, the agency said.
Let me put the loss for cryptocurrency scam victims in perspective. The median loss reported to the FTC for fraud generally is about $400, Fletcher said.
Adults 20 to 49 were more than five times more likely than older age groups to report losing money on cryptocurrency investment scams, the FTC said. People in their 20s and 30s lost more money to investment scams than any other form of fraud, and more than half of their losses were the result of crypto cons. Although people 50 and older were far less likely to report losing money on cryptocurrency scams, their losses were higher — a median of $3,250.
Devotees say bitcoin, Dogecoin and other cryptocurrencies will someday revolutionize the way electronic transactions are handled. It’s super cool to be in cryptocurrency.
“There’s also a lot of high pressure to this market where people are like, ‘You’ve got to get in now. Don’t wait. Don’t question it,” said Joe Rotunda, director, enforcement division at the Texas State Securities Board. “But investors need to be on guard.”
In March, the North American Securities Administrators Association (NASAA) listed cryptocurrency-related investment scams as a top investor threat. Investigate before you invest, Rotunda said. Check out any investment offerings with your state securities regulator.
The FTC said many victims reported being lured to sophisticated websites offering an opportunity to invest in cryptocurrencies. People set up accounts using real cryptocurrencies, which would of course be stolen. The sites use fake testimonials and cryptocurrency jargon to appear credible or show that their investments were growing. However, when people tried to withdraw the nonexistent profits, they were told to send even more cryptocurrency, Fletcher said.
In other schemes, people were told the more money they put in to climb investment tiers, the bigger returns they could expect.
Even the tried and true romance scam has evolved to include cryptocurrency. But instead of getting lovestruck individuals to fork over cash, scammers sweet-talk them into cryptocurrency investments. The FTC said about 20 percent of the money reported lost through romance scams since October 2020 was sent in cryptocurrency.
Another scam involves pitches using celebrity names. You give the celebrity-backed investment some of your cryptocurrency and you supposedly get back more than you put up. Consumers reported losing more than $2 million to Musk impersonators since October, the FTC said.
Crooks are also using the Social Security number con to collect cryptocurrency. People are told their Social Security number will be “suspended” because of criminal activity. Or they are threatened with arrest. To clear up the issue, victims are told they have to pay a fee in cryptocurrency.
If you’re promised a guaranteed return, run. If you’re told that your deposit of cryptocurrency will be multiplied, don’t take the bait. “The cryptocurrency itself is the investment,” Fletcher wrote in a report about the surge in the scams. “You make money if you’re lucky enough to sell it for more than you paid. Period. Don’t trust people who say they know a better way.”
Ric Edelman, the founder of Edelman Financial Engines, said it was inevitable that criminals would exploit the interest in cryptocurrencies.
“Scams involving bitcoin are no surprise, any more than the fact that as soon as we invented cars we started having car accidents,” he said. “So drive defensively and be just as defensive when investing.”