BBB Study: Cryptocurrency is Ripe for Fraud and Financial Loss

Cryptocurrency is the hot new trend in investing, and much is still not understood about this buzzy, volatile digital payment system that does not rely on banks to verify transactions. This has created a fertile environment for scams, according to a new in-depth investigative study by Better Business Bureau (BBB), which states: “A virtual tug of war exists between the legitimate and fraudulent use of cryptocurrency.”

“Scammers are capitalizing on the fact consumers are still relatively uninformed about how cryptocurrency works,” said Jennifer Adamany, BBB Central Indiana spokesperson. “The number of BBB Scam Tracker reports involving cryptocurrency doubled last year and tripled since 2020, which is why it’s so important to educate the public about these scams.”

The study – Cryptocurrency scams: BBB study finds lack of regulation and consumer education results in dramatic increase in fraud and financial losses – examines the many facets of cryptocurrency and the variety of ways criminals are exploiting the cryptocurrency market to steal from investors and victims of common scams. Read the full study here.

Cryptocurrency is a form of digital money whereby encryption technology can enable anyone anywhere to send and receive payments. It does not exist in a physical form such as paper money, but as lines of computer code, supported by a decentralized computer system known as blockchain and stored in a “crypto wallet.” Bitcoin, developed in 2009, is the most popular form of cryptocurrency, available for purchase at tens of thousands of Bitcoin ATMs and increasingly accepted as payment in certain retail transactions. Ethereum is the second most common cryptocurrency and is centrally involved in the increasingly popular non-fungible tokens (NFTs), digital assets such as pictures or music that are purchased with cryptocurrency as an investment. Critically, cryptocurrency operates outside the traditional banking system and is not subject to the same protections as bank deposits or credit card transactions. 

“Cryptocurrencies and blockchain technology present new and exciting opportunities for consumers and businesses. However, consumers need to be on alert for scammers and fraudsters attempting exploit the novelty and newness of this emerging market.”– Scott Barnhart, Chief Counsel and Director of Consumer Protection. 

Reports from victims of large financial losses to cryptocurrency related scams are skyrocketing. In 2021, BBB received more than 2,400 complaints with monetary losses of nearly $8 million involving cryptocurrency companies. BBB Scam Tracker reports about crypto scams numbered more than 1,200 in 2021 and likewise totaled nearly $8 million in losses. Scam Tracker reports to BBB tripled between 2019 and 2021, and reported losses tripled over the last two years.

Cryptocurrency accounted for the second highest scam losses reported to the Federal Trade Commission (FTC) in 2021, with losses of $750 million. The FBI’s Internet Crime Complaint Center (IC3) and the Canadian Anti-Fraud Centre (CAFC) also had major increases in reports received and major increases in losses. BBB’s study notes that research shows that most people do not make a report when they are scammed, so actual losses suggested to be substantially greater.

Cryptocurrency has some key traits that make it attractive to scammers: It is relatively unregulated and difficult to recoup once lost; it is wildly popular, fueled in part by celebrity endorsements; and it is not well understood by the general public. The study states that the cryptocurrency market offers new opportunities for tried-and-true investment frauds such as Ponzi schemes and fraudulent ICOs (initial coin offerings), particularly given the development of new currencies and the lack of protections that government regulation has made available to more traditional investors.

Many victims report that after purchasing cryptocurrency, they were directed to websites where they had to create an account in order to monitor their investments. The websites are sophisticated, with many offering live customer service chats. But victims who want to withdraw their “earnings” are told they must contribute more money to cover taxes, commissions, or other fees. Ultimately, they can never withdraw money.

A consumer told BBB that she began learning about Bitcoin investing in the summer of 2021, reaching out via WhatsApp to an investing service she saw mentioned repeatedly in the comments of a YouTube video about Bitcoin. The woman was instructed to buy $1,500 in Bitcoin via CashApp; 10 days later, she received a screenshot displaying an account balance of more than $7,300. However, when she decided to withdraw her earnings, she was told to pay a 10% commission and a broker’s fee of more than $800. After she paid both, she received an email instructing her to pay an additional sum of nearly $1,200 to withdraw her money. She concluded it was a scam and reported it to BBB.

BBB Scam Tracker data shows that cryptocurrency scams most commonly originate on social media, with the FTC noting that 25% of crypto fraud reported in 2021 began on social media. Scammers may impersonate a victim’s friends to tell them about their success in crypto investing, or they may make Facebook posts promising big gains.

Cryptocurrency figures prominently in other scams as well. Law enforcement and BBB report that romance scammers have begun convincing their victims to invest in cryptocurrency via sophisticated fake apps, disappearing with the money when the victim attempts to withdraw proceeds. Ransomware scams also demand cryptocurrency as payment in many cases, BBB’s study notes. BBB Scam Tracker data shows that cryptocurrency also is a commonly requested payment method in fraudulent online sales, advance fee loan scams, employment scams, extortion scams, government impostor fees and more. Illicit transactions on the so-called dark web are often conducted using cryptocurrency, and it is used in money laundering.

Law enforcement agencies have pursued cases involving large cryptocurrency losses and the use of cryptocurrency in criminal activity. The U.S. Department of Justice has made arrests this year in cases involving billions of dollars in cryptocurrency laundering.

Tips to 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 log in credentials. Those then 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 common place 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 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.

Recommendations for industry and regulators:

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.

Where to report a scam or register a complaint:

• 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.

U.S. Securities and Exchange Commission — SEC.gov/tcr The Better Business Bureau has empowered people to find businesses, brands and charities they can trust for over 110 years. In 2021, people turned to BBB more than 200 million times for BBB Business Profiles on 6.3 million businesses and Charity Reports on 25,000 charities, free at BBB.org. Local, independent BBBs can be found across the United States, Canada, and Mexico, including BBB Serving Central Indiana, which was founded in 1916 and serves 46 counties.