UPDATE 15/09/22
Continuing with the latest trends in crypto scams, we will focus on the Rug Pull mechanism. As reported by Inversor Latam, USD 2.800 million have been stolen through this mechanism that is connected to high speculation (mainly in low cap projects): developers (artificially) pump up their projects’ token, then sell off before the project is built, leaving investors with a worthless currency, such as the SQUID case amid a bull market.
From our blog we will not defend those who abide by these actions to get exorbitant yields resulting in huge losses to others but the truth is that this mechanism is not considered a scam by legislation. To invest and to trade in unregulated markets governed by supply and demand may be risky and rug pulls are one of the risks involved. No governmental agency nor controlling body can take part in this market to protect investors since the nature of the crypto market is to be outside the scope of state control. But not all are bad news. As reported by Infobae, Justice in Argentina is becoming aware of the pros and cons of crypto use. This means that cryptoassets can be used for
fraud purposes and for fraud prevention and recovery purposes as well. Within this context, on one side AFIP has a protocol to seize digital wallets for instance. On the other side, one of the largest exchanges in the world was ordered by a criminal court to return the money proved to have been stolen from one user to another one. In this case, the victim was stolen her cell phone and the cryptoassets available through her mobile device. Through this mechanism, the victim’s assets (2 BTC, 21 ETH and other cryptocurrencies) had been transferred from her Binance account to another account (probably held by the criminals) in the same platform. Once the criminal’s wallet was identified, the court ordered to freeze the assets. In the meantime, the court and the prosecutor’s office requested information from the services’ supplier on the transactions and accounts’ movements that evidenced that said assets belonged to the victim. In this case, the Prosecutor’s Unit specialized in Cybercrime (UFECI) performed an excellent work.
For further details on this case, we recommend Chainalysis podcast covering information as from the perpetration of the crime until assets recovery. It is available only in English but it is quite interesting, with an expert’s vision with wide experience working for the security forces in charge of handling cryptoassets seizures.
As a brief summary of this update we can conclude that blockchain can be a good instrument for cybersecurity due to its traceability, as opposed to the concept that cryptocurrencies are crime- related instruments.
ORIGINAL ARTICLE
As from May 2022, scams have been increasingly reported by crypto investors. After our post on Funds Recovery in Hong Kong (with information from our local partner on the possibility to take action upon fraud cases in their jurisdiction), we have been consulted from different countries regarding crypto scams and the possibility to recover (even partially) the assets involved.
Even though from our blog we have shared some tips and we have tried to raise awareness on our clients and on the public in general on these schemes, like our article on Cybersecurity in Pandemics, virtual crime stands for as a large illegal industry reporting huge losses and damages. In the past, people were concerned about Ransomware; today, our clients seek advice on web sites that attract investors offering high yields but, sooner or later, they turn to be fraudulent platforms.
Despite the fact that many fraudsters are behind some projects, it is important to remark that failure to recover assets does not always involve a scam. There are cases where the involved parties have been acquitted and other projects which were simply badly designed such as the Terra/LUNA crash. We insist on the fact that investors have to do a thorough research on the projects offered before investing.
Most of these cases emerge when the crypto bear market starts (fostered by FED high rates). When the assets’ value and trust decline, investors seek to recover their money and, at that moment, the project solvency is tested.
Even though it seems obvious, whenever you invest in a platform, the only thing you see is a monitor that says that you own X assets as an investor. However, reliability of the information (assets owned, high yields, etc.) will only be proved upon withdrawal of the funds. While trustful investors contribute money, problems will not be detected. The current sale pressure revealed many scams and fake projects.
A case-by-case analysis would be boring but some of the tactics used by scammers involve a promoter (may be friends, false brokers, influencers, web sites or dating apps profiles ready to crypto talk in casual dialogues), to show huge yields in the platforms, to obstacle the withdrawal of profits and capital (invoking taxes, fees, withdrawal limits, etc.) and to demand money remittance under threaten of freezing funds or loosing money. Tron digital wallets, which are based on the Tron blockchain, are being widely used today (but this fact does not imply that the platform is liable for scam. It is just a common denominator, probably due to its easy use and privacy conditions). When this happens, a scam is likely to be concealed without the need of prior investments nor assets acquisition, only (unreal) yields simulation. As reported on the Terra crash and as we will comment on Celsius, some of the projects that limited funds withdrawals were not scams but companies unable to comply with their financial obligations. Even though with bad results, Terra or Celsius were real developments with digital assets and real projects behind its tokens and coins. Damaged investors will allege they are the same thing; the only difference lies in the possibility to recover assets. Those who invested in “bad projects” but real are likely to recover part of their investments in the future.
In Brazil, IDTech released a research on financial fraud attempts in the first half of 2022 with a historic record: R$ 59.000 million in losses; 1.043.832 cyber fraud attempts; 512.145 banking fraud attempts and 234.609 in retail trade. The proportion is 30% up compared to the last semester. We recommend this post by iProUp for more information.
In Spain, TransUnion reports a global decrease in fraud attempts but a considerable increase in other sectors. Obviously, fraud strategies vary as time goes by to be attractive for the potential victims. This is an estimation only and differs from other reports because, in Spain, “promotion abuse” is considered a fraud due to the severe European data protection legislation. Please enter this link to read the complete report.
Cybercrime has no borders and goes beyond Latin America. In 2021 (amid bull market) the Thodex case emerged in Turkish reporting damages and losses for USD 10.000 million. Recently, in the United States, the CFTC filed a civil enforcement action against Mirror Trading International, a crypto platform based in South Africa, for an alleged fraud to 23.000 North American users approximately for USD 1.700 million. For further details we invite you to read this article from Infobae. If fraud is confirmed, victims are estimated in 300.000 throughout the globe. This action is the CFTC’s largest fraud scheme case involving cryptoassets. CFTC’s press release can be found here.
Considering the huge damages and losses suffered by bona fide crypto investors, even risking their lives’ savings, we insist on the need to make a thorough research before making money remittances to platforms or brokers. Special attention must be given when yields offered are excessive compared to others offered in the market, when they are promoted as “guaranteed”, if conditions change suddenly and/or if obstacles emerge upon investment recovery.
