Tech & Crypto

CRYPTO FRAUD: A challenge for the crypto industry (third release)

Por 30 abril, 2024 No Comments

While crypto communities worldwide are getting ready for a new boom of the crypto ecosystem, we continue to be committed to raising awareness of crypto crime. In the midst of bull market euphoria, investors can be tempted to let their guard down or be too naïve. The maxim “if something is too good to be true, it probably isn’t” still holds true.
In this sense, we collected some additional information on several crypto crimes. We insist that the problem does not lie on the means (cryptoasset) but on the crime (scam, theft, etc.).
Starting with the bad news, according to several surveys, an increase of 153% in losses has been reported due to crypto-hacks in the third quarter of 2023, even during the bear market, compared to the same period of 2022. We recommend this article by BeInCrypto focused on the analysis of different reports and trends on this topic. Among massive security incidents, the CoinW Exchange suffered a USD 13M hack (reaffirming the fact that not only blockchains are subject to vulnerabilities).
Continuing with other sort of “thefts”, The United Kingdom has reported an increase of 75% in electric power thefts. The suspected parties involved are mainly crypto-mining farms (and cannabis producers). Malaysia and other countries have reportedly dismantled miners’ operations. The rising cost of living and higher electric power costs are also attributed to this situation. For further information, click here.
Regarding regulation, Rostin Benham -Chairman of the Commodity Futures Trading Commission (CFTC)- seeks additional authority and resources to fight against fraud. It seems a contradiction given the CFTC boasted about the actions taken against several crypto and DeFi projects. In the meantime, the CFTC Chairman was accused by companies such as Coinbase of exceeding his functions. We leave the source here for further information.
Also, Alex Mashinsky, cofounder, and former CEO of the now bankrupt Celsius Network, faces multiple charges for criminal fraud and market manipulation (here our articles on this topic and on suspension of funds’ withdrawals). He is currently out on bail and the trial date has been set for September 2024. You can read this article for further details.
From the compliance point of view, regulatory authorities globally continue to pressure crypto projects and exchanges for an allegedly lack of compliance with anti-money laundering (AML) rules. Beyond the agreement between Binance and Changpeng Zhao (CZ) by means of which the ex CEO of the largest Exchange globally pleaded guilty to violating bank secrecy and anti-money laundering rules, London-based ADM Investor Services (a broker) was fined almost USD 7.8M by the FCA for inadequate anti-money laundering systems and controls. The company accepted to pay to avoid extra charges. This reflects that, on one side, (i) compliance groups within crypto companies are working properly and, on the other side, (ii) some companies are ready to agree on certain actions to compensate the regulatory gap and focus on the future ahead.
As regards the good news, we will focus on some events. The police in Connecticut (USA) has been able to recover USD 3M stolen by Pakistani fraudsters that had impersonated Kraken Exchange, one of the largest crypto exchanges in the world. For further details, here is the article posted by BeInCrypto.
In this line, good results were achieved locally as well. In the Province of Chubut, security forces were able to recover USD 5,000 stolen through a social media scam conducted from Venezuela. The leaders are presumably abroad but one individual was arrested, and the victim was refunded. In a similar Ponzi scheme, four people were arrested in Buenos Aires with 50 victims looking for justice. The mechanisms applied in both cases are explained here.
We’d like to highlight that crypto crime is in the hands of “multinational companies” (not isolated individuals), with quasi-corporate structures and intelligence work. Even some countries such as North Korea are said to support this type of criminal organizations to make attacks and collect funds.

Diego J. Nunes
Estudio Nunes & Asoc.

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