Beware Investment and Crypto Scams

FORECASTS & TRENDS E-LETTER
by Spencer Wright
September 24, 2024

IN THIS ISSUE:

Investment and Crypto scams are on the Rise
Types of Scams and How to Avoid Them
Wisconsin Leads the Way on Identifying Scams
Final Thoughts

 

Investment and Crypto Scams are on the Rise

According to recent data, investment frauds, including cryptocurrency scams, have seen a significant surge in the United States. The FBI’s Internet Crime Report 2023 reveals that overall investment frauds grew by 38% to $4.57 billion from $3.31 billion, with cryptocurrency scams accounting for a substantial portion of these frauds. Total investment fraud losses have ballooned over the last five years by nearly 10-fold. And these scams do not just target elderly Americans. Most of the scams are directed at adults aged 30-49. Consider this graphic from the report.

Graphic showing large investment fraud losses

Types of Scams and How to Avoid Them

There are many types of investment and crypto scams. They can appear via email, text, social media, etc. The delivery methods have become very sophisticated. As we have seen above, investment fraud is a multi-billion dollar industry. Here are ten of the most common investment scams.

  • Ponzi Schemes: Return payments are made to earlier investors using funds from newer investors, rather than from profit earned.
  • Pyramid Schemes: Participants make money by recruiting others, with the promise of large returns or profits, but the scheme collapses when new recruits dry up.
  • Guaranteed Investment Scams: Scammers promise unusually high returns or guarantees, often using fake financial statements or testimonials.
  • Urgency Scams: Scammers create a sense of urgency, claiming limited-time offers or high-pressure tactics to prompt investment decisions.
  • Ambiguous Investment Scams: Scammers hide behind unclear or misleading information, making it difficult for investors to understand the investment.
  • Cold Call Scams: Unsolicited investment offers are made over the phone, email, or social media, often using high-pressure tactics.
  • Too-Good-To-Be-True Scams: Scammers promise unusually high returns or easy profits, often using fake testimonials or success stories.
  • Affinity Fraud: Scammers target specific groups, such as seniors, ethnic or religious communities, using trusted relationships to gain credibility.
  • Pump and Dump Scams: Scammers buy cheap stocks, inflate their value through false claims or manipulative tactics, and then sell at the inflated price.
  • Romance Baiting Scams: Scammers use dating apps to form relationships, then offer fake investment opportunities or persuade victims to invest in fraudulent schemes

As you will see, crypto scams tend to be more technology focused and as a result are targeted more toward the age 30-49 demographic. Of course, anyone regardless of age could fall victim to one of these elaborate frauds. Here are some common crypto scams.

  • Phishing scams: Scammers create fake cryptocurrency trading platforms or fake versions of official crypto wallets to trick unsuspecting victims into revealing private keys or financial information.
  • Fake exchanges: Scammers operate fake cryptocurrency exchanges, promising high returns or guaranteed investment opportunities, but ultimately stealing investors’ funds.
  • Rug pull scams: Scammers create hype around an Initial Coin Offering (ICO) or a new cryptocurrency, convincing investors to buy in, and then disappear with the funds.
  • Cloud mining scams: Scammers promise investors a share of the revenue generated by cloud-mined cryptocurrencies, but instead, steal their investments.
  • Initial Coin Offering (ICO) scams: Scammers create fake ICOs, promising high returns or investment opportunities, but ultimately steal investors’ funds.
  • Phantom cryptocurrency scams: Scammers promise investors a share of a non-existent cryptocurrency, convincing them to invest, and then disappear with the funds.
  • Giveaway scams: Scammers promise investors a free cryptocurrency or a guaranteed return, but instead, steal their personal information or funds.
  • Blackmail scams: Scammers threaten to expose victims’ personal information or online activities unless they send cryptocurrency or private keys.

By using both caution and common sense, you can protect yourself from financial scams. Here are a few things that you can do.

Don’t allow yourself to be rushed into taking action. Legitimate investments do not require you to ‘act now’ or the opportunity will be lost.

Do your research. These days it does not take long to verify claims and representations made.

Make certain that the investment is using a well-known and established US based platform such as Fidelity, Schwab, etc. Be wary of bespoke websites or foreign exchanges.

Ask for documentation that you can review and share with a local advisor. Legitimate opportunities will not shy away from this.

And of course, if it sounds too good to be true it almost certainly is.

But most importantly, report any suspicious activity to the authorities, especially if you get caught up in it.

Wisconsin Leads the Way on Identifying Scams

Every now and then, the government does something right. Large number theory remains intact. In this case the state of Wisconsin has produced a financial fraud / scam platform that is so good it should be immediately copied and implemented by all states.

You can find the ‘scam tracker’ here. This tracker also serves as a database of financial crime. It details the date, type of scam, a narrative of the complaint and the amount lost. I encourage you to look through it; some of the amounts swindled are quite large.

Of course, financial crimes are not as frequently reported as they should be. If you are the victim of a financial crime or think you have been you should report it to the authorities.

Final Thoughts

Financial scams have increased dramatically over the last five years. I was stunned by the findings in the FBI report. The public is highly at risk. Exercise common sense, know who you are dealing with. Never give someone access to your account and never send money. Legitimate firms and opportunities will never insist on this. Always confirm any investment with a trusted advisor.

Thanks for reading,

[Spencer]

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