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BBB warns of rise in cryptocurrency scams

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Published: Mar. 26, 2022 at 3:01 PM CDT
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TOPEKA, Kan. (WIBW) - The Better Business Bureau has warned in a rise in scams involving cryptocurrency and has given residents tips to avoid them.

The Better Business Bureau says cryptocurrency is the hottest new trend in investing and much is still not understood about the digital payment system that does not rely on banks to verify transactions. It said this has created the perfect environment for scams according to its latest in-depth study, which states, “A virtual tug of war exists between the legitimate and fraudulent use of cryptocurrency.”

The BBB said the study, titled Cryptocurrency scams: BBB study finds lack of regulation and consumer education results in a dramatic increase in fraud and financial losses, details the many layers of cryptocurrency and the ways criminals have exploited the market to steal from investors and victims of common scams.

“This groundbreaking study sheds light on the latest series of scam trends we’ve monitored,” said BBB President and CEO Jim Hegarty. “Cryptocurrency is here to stay, and we want to ensure our communities are aware of the potential for scam-related activity in these relatively new markets.”

The Bureau said a cryptocurrency is a form of digital money that allows encrypted technology to enable anyone anywhere to send and receive payments. It said it does not exist in a physical form like paper money but as lines of computer code supported by a decentralized computer system known as a blockchain and stored in a crypto wallet.

BBB said Bitcoin, developed in 2009, is the most popular form of cryptocurrency and is available for purchase at tens of thousands of Bitcoin ATMs and is increasingly accepted as payment in retail transactions. It said Ethereum is the second most common and is centrally involved in the increasingly popular non-fungible tokens - NFTs - digital assets like pictures or music purchased with crypto as an investment.

Critically, the Bureau said cryptocurrency operates outside traditional banking systems and is not subject to the same protections as bank deposits or credit card transactions.

BBB said reports from victims of large financial losses to crypto-related scams have skyrocketed. In 2021, it said it received over 2,400 complaints with monetary losses of almost $8 million involving crypto companies. It said the BBB Scam Tracker reports tripled between 2019 and 2021 and reported losses tripled over the past two years.

The Bureau said cryptocurrency accounted for the second-highest scam losses reported to the Federal Trade Commission in 2021, with losses of $750 million. It said the FBI’s Internet Crime Complaint Center and the Canadian Anti-Fraud Centre also had major increases in reports received and losses.

The report notes most residents do not make a report when they are scammed, so suggested losses could be substantially greater.

BBB said crypto has some key characteristics which make it attractive to scammers. It said crypto is relatively unregulated and difficult to recover when lost; it is wildly popular, fueled by celebrity endorsements; and is not well understood by the general public.

The study indicates cryptocurrency markets offer new opportunities for tried-and-true investment frauds like Ponzi schemes and fraudulent ICOs - initial coin offerings - particularly given the development of new currencies and the lack of protections government regulation has made available to more traditional investors.

The Bureau said many victims report after they purchase crypto, they were directed to websites where they had to make an account to monitor investments. It said the websites are sophisticated with many offering live customer service chats. However, it said victims who want to withdraw their “earnings” are told they need to pay more money to cover taxes, commissions or other fees. Ultimately, it said customers can never withdraw the money.

A consumer told BBB she had started to learn about Bitcoin investing in the summer of 2021 and reached out via WhatsApp to an investing service she saw repeatedly mentioned in the comments of a YouTube video about Bitcoin. She said she was ordered to by $1,500 in Bitcoin via CashApp and 10 days later, she received a screenshot that showed an account balance of over $7,300.

However, BBB said when the woman tried to withdraw her earnings, she was told to pay a 10% commission and a broker’s fee of over $800. After she paid both, it said she received an email that ordered her to pay an additional $1,200 to withdraw the money. She concluded it had been a scam and reported it to the Bureau.

BBB Scam Tracker data indicates crypto scams most commonly originate on social media, with the FTC noting about 25% of crypto fraud reported in 2021 started on social media. It said scammers can impersonate a victim’s friend to tell them about their success in crypto investing or they may make posts promising big gains.

The Bureau said cryptocurrency figures prominently in other scams as well. It said law enforcement reports that romance scammers have started to convince victims to invest in crypto via sophisticated fake apps, disappearing with the money when the victim tries to withdraw the funds. It said ransomware scams also demand crypto as payment in many cases according to its notes.

BBB Scam Tracker data shows crypto also is a commonly requested payment method in fraudulent online sales, advance fee loan scams, employment scams, extortion scams, government impostor fees and more. It said illicit transactions on the dark web are often conducted using crypto and it is used in money laundering.

The Bureau said law enforcement agencies have pursued cases that involved large cryptocurrency losses and the use of crypto in criminal activity. It said the U.S. Department of Justice has made arrests in 2022 in cases that involved billions of dollars in crypto laundering.

BBB offered the following tips to help residents avoid cryptocurrency scams:

  • Guard your wallet. If you buy cryptocurrency, the security of the wallet is of prime importance. If you lose the key, then your funds are gone permanently.
  • Look carefully at email addresses and website addresses. Phishing scams often try to trick people into logging in and then capture the login credentials. Those can be used to steal money. Looking for an exchange with an internet search engine may lead to fake sites which advertise and impersonate real companies. Be especially careful when viewing these on a phone.
  • Do not pay for products with cryptocurrency. Be careful if someone asks you to pay with Bitcoin or another cryptocurrency. No one with the government will ever ask for this form of payment.
  • Beware of fake recovery companies. Scam companies sometimes claim that they can recover stolen money – for a fee. These are usually scammers.
  • Watch out for fake reviews. Scammers often create fake reviews for their own companies.
  • Be wary of celebrity endorsements. It can be tempting to rely on a prominent figure who has invested in cryptocurrency. But those endorsements are often not authorized and even if they are, the celebrity may be paid for the effort and may not know more about it than you do.
  • Be careful about claims made on social media. This is the most commonplace for people to encounter investment scams.
  • Be wary of “friends” who reach out to you on social media and tell you how they made money with cryptocurrency. Accounts are frequently compromised. Call your friend by phone to see if it is really them.
  • Only download apps from Google Play or the App Store. Trusted app stores do not eliminate the threat of app scams, but they do offer a basic level of protection. Be careful with apps. Some contain malicious software.
  • Do not believe in promises of guaranteed returns. No one can guarantee how an investment will perform.
  • Seek help and support. Cybercrime Support Network offers a free, confidential support program for romance scam survivors.

The Bureau recommended the industry and regulates do the following:

  • Social media should do more to:
    • Prevent hijacking of profiles
    • Stop scam advertisements for cryptocurrency investment schemes
    • Prevent the illegal use of celebrity names to promote cryptocurrency scams
  • Regulators should carefully monitor Bitcoin ATMs to prevent use by scammers.
  • BBB, media, trade groups and government agencies should continue to educate the public about risks.
  • U.S. Department of Treasury and security regulators should provide stringent oversight and regulation of cryptocurrencies

To report a scam or register a complaint, visit the following:

  • Better Business Bureau — file a complaint with your local BBB at BBB.org if you lost money or report a scam online at //BBB.org/scamtracker.
  • Federal Trade Commission (FTC) — file a complaint online at reportfraud.ftc.gov or call 877-FTC-Help.
  • Internet Crime Complaint Center (IC3) — file a complaint online at //ic3.gov/complaint and include:
    • All transaction IDs
    • Where you sent your crypto from (private wallet, account at exchange X, etc.)
    • Where you believed you were sending your funds (perpetrator’s private wallet, arbitrage account, etc.)
    • Any details regarding the scam and scammers.
  • Canadian Anti-Fraud Centre — file a report online at antifraudcentre-centreantifraude.ca or call 1-888-495-8501.
  • U.S. Securities and Exchange Commission — //SEC.gov/tcr

To read the full study, click HERE.

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