/ Scams

How do cryptocurrency scams work?

A cryptocurrency inspired by the hit Netflix show Squid Game made headlines last week when it completely collapsed. Do you know how apparent ‘rug pull’ scams work?

Last week the BBC reported that the cryptocurrency ‘Squid’, based on the phenomenal success of the Netflix series Squid Game, had collapsed in an apparent scam. The new digital token wasn’t quite as straightforward as buying and selling currencies either, which likely helped the perpetrators pull it off.

It was promoted as a ‘play to earn’ cryptocurrency. This is when tokens are bought to play online games in which you can earn more tokens which can then, in theory, be traded for other cryptocurrencies. 

But in this case, the tokens were completely worthless. According to Gizmodo, soon after its launch, the developers made off with the money victims had paid them – an estimated $3.3 million.

Explosion of ‘alternative’ cryptocurrencies

There has been an explosion of ‘alternative’ cryptocurrencies recently. Hundreds are being launched all the time, hoping to follow the rise of Bitcoin. Many, like Squid, attempt to piggyback off of trends, and are increasingly promoted by celebrities and online influencers. 

But regardless of what the cryptocurrency is called, or who is endorsing it, there is absolutely no regulation in this space. This makes the cryptocurrency scene a bit of a Wild West – and a potential playground for scammers.

What is a ‘rug pull’ scam?

Crypto scams tend to follow similar patterns. First there will be a lot of hype created online, with heavy advertising on social media and forums. The returns and rates are engineered to give an illusion of lucrative returns very early on.

The bigger the hype, the more people will invest, and the value might genuinely go up.

Then, without warning, the founders will disappear – and so will all your money. This is called a ‘rug pull’ scam.

There’s understandably a lot of excitement around crypto, which can lead to plenty of criminals capitalising on those eager to make money in a tough economic climate. It’s essentially gambling but, in the case of a scam, there is never any chance of winning.

How are crypto scams promoted?

Most cryptocurrency investment opportunities are promoted in similar ways, so it can be difficult to tell the real deal from the scams. But there are a few things to be sceptical about:

Being regularly bombarded by the same persuasive adverts online and on social media.

Unsolicited emails and messages on social media and forums promoting crypto investments. Sometimes these messages can be highly personalised and claim to offer insider tips.

Fake news stories designed to look like genuine media coverage that report success stories of those who have apparently made huge profits from crypto investing.

Fraudulent use of celebrities or influencers to promote a cryptocurrency or exchange platform without their knowledge. 

Social media accounts portraying the ‘luxury lifestyles’ of those who have ‘made their fortune’ on crypto. They’re easily fabricated.

Four signs of a crypto scam

⚠ Huge hype and unrealistic promises of high returns. Investors should be warned from the start that dabbling in crypto is at your own risk, and your investment could go up or down in value.

⚠ Initial investments are quickly lucrative, and you’re encouraged to invest more money to take advantage of great rates.

⚠ The new currency has a novelty name or design these could be trying to capitalise on a current trend which is usually just that a short lived fad.

⚠ The inability to sell the crypto you’ve bought, or exchange it for other cryptocurrencies.

Even if your friends, family or contacts encourage you to invest in cryptocurrency, it can’t hurt to be sceptical. Some operate similarly to pyramid schemes with those sucked in encouraged to ‘recruit’ relatives and friends for financial gain.

Some celebrity endorsements should also be taken with some cynicism. They can be easily faked, with stars’ names being used without their permission or knowledge.

However, celebrities are genuinely increasingly collaborating with, and promoting, crypto platforms. But ask yourself: is the singer, footballer or YouTuber really an expert in finance and investing? Of course not all crypto promotions and endorsements are scams, but do as much research as possible before making risky investments. If you do want to experiment, make sure you’re using an established exchange platform.

You probably won’t get your money back if things go wrong. Many high street banks block customers from buying cryptocurrency for this reason.

Are you tempted to invest in cryptocurrency? What’s been your experience? Have you spotted potential scams or even been a victim?

Comments

[Moderator: this comment has been deleted as it did not adhere to the Community Guidelines. Please don’t use comments to post spam or to promote businesses (either your own or others).]

This comment could be promotional so it has been reported for review by the moderators. The company mentioned is based in New York. There is not much useful information on its website and it is not clear whether or not it can assist UK residents. The website contains numerous literacy errors, no names and qualifications of its agents are stated, and there are no references to its competence or the extent to which it meets any professional standards of investigation and recovery action.

It has not yet been removed. @jon-stricklin-coutinho, Jon, is it an acceptable comment?

My bad – that one’s gone now.

With the mention of cryptocurrency we’ve been getting a lot more spam comments of late – the one that previously appeared above is a good example. Please do keep reporting them as you have been and we’ll action them ASAP.

Helen Hamilton says:
2 December 2021

I am still getting phone calls from (supposedly) Microsoft saying that my computer needs attention. I haven’t used a computer for years as the one I had was broken long ago.

Brian Hopkins says:
6 December 2021

I was hacked last week by ” microsoft” my computer flashed warnings that it was locked owing to illegal activity. i closed it on Monday but the message was still there Tuesday morning and looked genuine– windows defender logo — I got into a conversation and the computer was taken over after some time I realized my foolishness and closed everything down and contacted my bank. Gift cards of £50 each had already been taken, which were cancelled and my credit card frozen and a new one issued. I feel a fool and this experience is rather shaken me up, it is not good for the health of older people–I am in my 80’s.

You might be pleased to know that some folk are now hacking back at the hackers, just look on youtube, and screwing up their systems and giving them a taste of their own medicine, and the more they get hit back the better!

It is encouraging but also risky to tackle scammers and hackers. Jim Browning has a YouTube channel with many videos showing his own efforts to fight the problem and identify those involved and their locations.

Despite his extensive knowledge he was once the victim and had his channel deleted. Fortunately he was able to reinstate his work and I respect him for producing a video about how he became the victim.

As a carer for a close relative with mental health problems, I would challenge anyone who stands firm on the premise that consumers should take responsibility for falling victim to bank scams.

Money and Mental Health is a charity specifically set up by Martin Lewis with a view to putting pressure on the government to add scams to the Online Harms Bill – to warn people are being left as ‘easy prey’ for scammers.

“In particular it shows that over 4.5m people with mental health problems have been victims of online scammers, causing crippling financial harm and distress.”

“Impaired decision making and reduced concentration can make it much harder for people to identify and avoid online scams. People who have experienced mental health problems are three times more likely to have fallen victim to an online scam. (23% compared to 8%).”

This is just the tip of the iceberg, as there are many more people in todays society who could be deemed or categorised as vulnerable, or at risk from scammers.

moneyandmentalhealth.org – Government must add scams to Online Harms Bill – as charity warns people are being left as ‘easy prey’ for scammers.

Many people who are not classified as having mental health problems but are impressionable. Consider how many people trust the views of celebrities who (in most cases) have no specialist knowledge.

One of the problems is that it is easy to assume that others have the same capabilities as ourselves. Most of us can avoid scams by good luck and good management but there are so many victims that action is needed to protect the minority and to reduce crime. I support legislation.

As a regular contributors to Convo, one is constantly reminded and alert to the potential menace of online scams. Others go about their daily lives with alternative involvements and concerns.

To live your life in constant fear of being duped into losing your life savings is no life at all, and detrimental to one’s own mental health through anxiety and unease. I also support legislation.

I certainly don’t assume that everyone has the same capabilities. I have suggested that those with poorer capability and capacity should be helped in different ways from those who have all the necessary faculties. Legislation should address this in a sensible way that is fair to all concerned.

The large numbers affected speak for themselves. They are sufficient to warrant inclusion in any legislative decision making.

As I intimated when I said “fair to all”, there should be provision for those less capable and having less capacity. My view is this should be addressed by restricting the financial harm they can cause themselves by, for example, tailored bank accounts. This has been discussed in other Convos.

Perhaps we should also tackle the problem that the banking system is being used by criminals. In the same way that members of the public may not recognise a scam, banks may not be aware when accounts that they host are being used fraudulently, but their system should be run in a way that money can be refunded to the the accounts of scam victims.

We rightly want online marketplaces to take responsibility for ensuring that goods sold by their traders are safe and compliant with current standards. I suggest that attention is focused on how the banks are effectively facilitating fraudulent activities. We may not learn what precautions they take because that could be useful to criminals.

We can and should do our bit to protect ourselves from scams and other crime but it is business that can do much more.

Legislation should not discriminate as many people are borderline cases without official diagnosis. For example, there are 3 levels of bi-polar, mild, moderate and severe, all with inhibited concentration and impaired decision making to a greater or lesser degree. The first two would be quite unknown to banks but nevertheless with a potential to fall prey to scammers.

It is almost impossible to differentiate, which means legislation should apply to all categories to ensure all are protected. Anything else is discriminatory.

Online marketplace hosts, like Amazon, can vet the products they sell for authenticity before they accept them. Just as other retailers should. That is not equivalent to banks vetting account holders as they may not find they are using the facilities fraudulently until after it has happened.

It would be helpful to propose how banks systems could be improved, and seek expert views on this. ”……their system should be run in a way that money can be refunded to the the accounts of scam victims”. How do you propose this could be achieved?

I have said elsewhere that I believe the onus should be on the payee’s bank, not the payer’s, when a refund is justified. Unless, that is, the payers bank was negligent. This is probably not as straightforward as it seems and it would be useful, again, if Which? were to seek input on this.

So what legislation do you propose? Do you suggest everyone who is scammed should be refunded by their bank?

Many people may use their overdraft facility (arranged or unauthorised) in what some might see as a less than responsible way. Should the bank write the deficit off when that happens?

It could be that “punitive” legislation might lead banks to be much more discriminatory about who they grant account facilities to. That would perhaps be an unintended consequence. Or maybe if you suggest everyone is refunded all the account holders should be happy to bear the cost, which they will though bank charges and even worse interest rates on savings.

I am interested in seeing a fair solution and in discussing specific actions that are realistically available. Could you explain just how you would see this working?

Beryl – Although I have had no experience with mental health issues I support what you are saying. This Conversation is about cryptocurrency scams and comments here are unlikely to be seen by anyone with knowledge of protecting those with mental health problems against fraud. The only vaguely relevant Conversation I am aware of is this one, which has attracted no posts so far: https://conversation.which.co.uk/scams/scams-impact-victims-wellbeing-rocio-concha/

Malcolm wrote: “How do you propose this could be achieved?” I have suggested that there needs to be time for suspected scams to be reported and investigated, so that money can be returned to the victim’s bank, which should not affect other customers. This is not the first time you have asked me essentially the same question.

“Do you suggest everyone who is scammed should be refunded by their bank?” I am suggesting that the bank does not complete the transaction, so that money can be refunded. Maybe an enquiry is needed to investigate how current banking systems are effectively supporting crime.

I have nothing further to say in a Conversation that is supposed to be focussed on cryptocurrency scams. I will try and learn more about mental health issues.

The onus is on the banks to protect the money everyone lends to them with a guarantee it will be returned with interest when required. We are assured of sums up to £85,000 but only on the condition that we all don’t decide to withdraw savings all at the same time in the event of another bank crash, which would deplete a banks reserves.

If it is not your money that is lent them, then whose money is it?

I would point out two people raised bank scams more generally, wavechange. Perhaps these comments should be transferred to a more relevant Convo; this one perhaps https://conversation.which.co.uk/scams/financial-ombudsman-service-psr-code/

Back to cryptocurreny scams. If someone knows nothing about cryptocurrencies and is taken in, perhaps, by an offer that is too good to be true (and thus is not), should their bank refund them? I am interested to know where some think the line should be drawn.

I am certainly happy for the payer’s bank, if they have played no negligent part in a transaction, to do their best to recover money lost to fraud and, if successful, refund the payer less reasonable costs.

Beryl, the bank will protect the money you leave in your account and, if the bank is robbed (uncommon these days) your money is safe. When you choose to withdraw your money, or transfer it out of your account and therefore out of the bank’s control, you are taking responsibility for its use. If you withdraw cash and give it someone else , is the bank responsible if that transaction goes sour? If, instead of withdrawing cash you withdraw money electronically and give it to the same person, why does the bank suddenly become responsible if they can have no prior knowledge of that person’s intent?

I simply want a logical explanation of why, if no knowledge exists that could detect a potential fraud, cryptocurreny or otherwise, why a bank becomes liable for the loss. If, as one or two consumer groups have suggested, it is because the banks have more money than their customers and they become, effective,y, “sympathy” refunds then let us be straightforward and say so.

Incidentally, you deposit money with your bank for you to do with what you wish at any time. It is not “lent” to them, as has been discussed elsewhere. However, that is not material to this particular issue.

You are not alone Wavechange, but people with mental health issues are often highly intelligent people running large corporations both financial and otherwise and are more prone to taking risks. Some are CEO’s who happen to top the list of psychopaths, as I have alluded to many times in the past.

Banks are not too interested in one’s mental health, which is another reason for legislation to be passed to protect all without the need to discriminate.

Malcolm I think you are confusing virtual money with bank reserves.

Bank reserves are the minimal amount of cash that banks are required to keep on hand in case of unexpected demand.

Bank reserves are kept in order to prevent the panic that can arise if customers discover that a bank doesn’t have enough cash on hand to meet immediate demand. Bank reserves may be kept in a vault on-site or sent to a bigger bank or a Government Reserve Facility.

It is doubtful, in the unlikely event of customers withdrawing their money all at the same time, the banks reserves would be able to meet the demand.

No, I am not confused.
The money you deposit with a bank is protected up to £85000 in the unlikely event your bank should fail.

Would you like to be precise about exactly what you want banks to do, who they should refund, how they should identify fraudulent transactions and why they should be held responsible for a customer’s actions?

I have done that clearly and precisely Malcolm. You may not agree with it, and you no doubt have your reasons for doing so. That is your prerogative which I respect.

I worry about the frequent calls for more and more legislation. Fraud is already a crime. I am not clear about what further law is needed in this respect. To my mind it is no use to keep passing laws that criminalise this or that unless there are the means and the resources in place to detect the offenders and prosecute them. It is not obvious that that is the case with this suggestion.

I agree that a much more personal and bespoke approach is needed by the banks as to how people operate their accounts. We also need to know a lot more about how the frauds actually occurred that are the subject of this discussion; if computer use is an open door for on-line frauds then we need to find more advanced ways to protect vulnerable people who have a high on-line activity profile, and if that means reducing their activity level, or restricting external access to their system in a similar way to telephone call monitoring and interception facilities, or by other means that keeps them out of harm’s way, this should be explored.

I also feel that every vulnerable person should have some form of guardian, attorney, or other representative who can act on their behalf. People are only vulnerable if society leaves them exposed to risks, so we should assess the risks for all such individuals and develop the means to protect them. I don’t think blanket legislation is the answer and is not much more than a feel-good response because society cannot or will not face up to the responsibility of dealing with each problem case individually.

Personally I consider that telephone scams are a bigger problem than on-line ones, for example the service cover scams to which elderly people seem to be particularly exposed. It is illegal but rampant. The technology exists to control unwanted telephone access but obviously many of the people at risk are not availing themselves of it; we need to know why not and how that can be changed.

Incidentally, in the event of a run on a bank, i.e. a massive cash withdrawal, there are so few branches left now that the queues would be so long that the bank would have plenty of time to replenish their liquid reserves from the Bank of England and other banks as well as call in loans and other facilities to meet the demand for repayment. The mechanisms within the banking system mean that this is largely hypothetical but each bank is nevertheless required to maintain a substantial liquidity reserve [and this is periodically stress-tested by the Prudential Regulation Authority].

In the event of a massive on-line withdrawal by transfer to alternative accounts the system would slow down the process and limit the volumes of transactions electronically. No actual cash would change hands so the impact on the reserves would be minimal and inter-bank financing would cover the position until the BoE restored order by whatever means were appropriate.

A good move would be for the government to make it illegal to sell mailing lists containing any personal details, including phone numbers.
A nice little earner for the mobile phone companies.

Mr C — I believe it is illegal under the General Data Protection Regulations. I suspect in most cases the mailing lists are not purchased but stolen by hackers and then sold on in the criminal underworld.