The SEC’s Office of Investor Education and Advocacy has issued an alert, highlighting five common crypto scams investors should watch out for to avoid losing money. The SEC warns that fraudsters exploit cryptocurrency popularity with sophisticated techniques, making fund recovery difficult. For example, “Fraudsters may conduct pump-and-dump schemes with crypto assets, including so-called ‘memecoins’ that refer to popular culture or internet memes,” the regulator said.
SEC’s Crypto Scam Warning
The U.S. Securities and Exchange Commission (SEC)’s Office of Investor Education and Advocacy issued an Investor Alert on Wednesday, cautioning investors about the increasing threat of scams involving crypto asset securities. Fraudsters are increasingly exploiting the popularity of cryptocurrencies to deceive retail investors, the regulator warned, emphasizing that these scams often involve sophisticated techniques, making it challenging to recover stolen funds. The SEC cautioned:
Fraudsters use a variety of techniques to convince investors to hand over their hard-earned money.
The alert details five common tactics used by fraudsters. Firstly, fraudsters build trust through social media or accidental text messages, pretending to be acquaintances. They quickly move conversations off the initial platform, establish relationships, and propose lucrative crypto investment opportunities. They create legitimate-looking but fake websites, showing fake profits and allowing small withdrawals to build trust before soliciting larger sums, which then become inaccessible.
Secondly, fraudsters exploit the hype around emerging technologies like artificial intelligence (AI). They use AI-related buzzwords and claims of high returns to attract investments. AI technology is also used to create realistic websites, marketing materials, and deepfake content, imitating celebrities or trusted individuals to gain confidence. Thirdly, fraudsters impersonate trusted sources, including government agencies like the SEC. They use AI technology and hacked social media accounts to send messages appearing to be from friends or family, promoting fraudulent investment opportunities. Even if a pitch seems to come from a known person, it could be a scam.
Fourthly, the SEC warned:
Fraudsters may conduct pump-and-dump schemes with crypto assets, including so-called ‘memecoins’ that refer to popular culture or internet memes.
“For example, fraudsters may create a memecoin and then tout it on social media – sometimes in what they refer to as a ‘pre-sale’ – to get others to buy and ‘pump’ up, or increase, its price. Then the promoters or others working with them ‘dump,’ or sell, before the hype ends, profiting from the pumped up price,” the securities regulator noted. “Typically, after the promoters sell and take their profit, the price decreases rapidly, and everyone else who bought the tokens loses most of their money.”
Lastly, fraudsters demand additional payments for withdrawals, known as advance fee fraud. They may claim accounts are frozen or under investigation, or request repayments for supposedly mistaken deposits. Scammers also target previous victims, promising to help recover lost assets for additional payments or access to private keys, leading to further losses. In conclusion, the SEC advised investors to steer clear of decisions influenced by unsolicited contacts or social media recommendations, underscoring the necessity of independently verifying any claims and exercising caution with investments that require payment via crypto assets.