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Beware of Cryptocurrency Scams!

Published Oct 14, 2021 07:42AM ET Updated Oct 14, 2021 08:00AM ET
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Beware of Cryptocurrency Scams!
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  • Cryptocurrency Ponzi schemes are being used more frequently around the world.
  • This pyramid-type scam constantly needs to add victims to the “investment network.”
  • The United States Securities and Exchange Commission (SEC) published a series of recommendations for detecting crypto fraud.

The tricks and frauds that are committed with cryptocurrencies are increasingly sophisticated, so it is not easy to detect them with the naked eye. Among these methods to scam the unwary with cryptocurrencies, Ponzi schemes, where the scammer shows victims profits that they will never be able to collect, stand out.

The Ponzi scheme has been used in the United States, Latin America, Asia, and Eastern Europe, and has already reached large investors from these regions. As the market for crypto assets has expanded, so have the scam networks that are permanently lurking.

In almost all cryptocurrency scams, the so-called Ponzi scheme is present. A very popular form of pyramid scam throughout the world, it operates by attracting money from investors who are promised that significant investments in cryptocurrencies will generate interest of up to 25% in a short time.

Generally, to gain the trust of the victims, the criminals pay the profits or interest as agreed. Although in reality, the money used to pay the generous returns does not belong to the criminals but to the new victims who are joining the scheme.

So the system needs to grow constantly so that the first dupes get their payments. After a while, the chain is cut and that is when the victims realize that they have been scammed. The person who caught them does not appear or makes permanent excuses for the delay of the new payments.

Ponzi Scheme with Cryptocurrencies

In the crypto universe, the creators of the pyramid scheme convince new members by showing them success: motivational conferences, social media advertising, high income, and dream lifestyles. After convincing them, they must put up an entry fee to the investor club and attract new seekers for easy profits.

The more people join the chain, the more the investor profits, theoretically. New investors are registered on the website managed by crypto scammers. The Ponzi scheme is based on trust, since the new investors are usually relatives or friends of the person who captures them.

In recent years, the cryptocurrency Ponzi scheme was established through memberships to differentiate it from more traditional multi-level or pyramid businesses. The promise of profit can be daily or weekly, through fictitious investments in trading or mining Bitcoin or any other cryptocurrency.

Through fraudulent websites that serve as a front for criminals, people see their profits increase every day. It is only after a while, when they ask the investment manager to reimburse the profits obtained, that they realize the fraud.

How Do Fraudulent Cryptocurrency Sites Operate?

It is difficult to detect fraudulent sites at first, so it is necessary to learn the warning signs. These fraudulent websites ask the new user to register and create a personal user account with a password. To do so, it is necessary to supply personal data just like a user on any exchange or legal trading and investment platform.

One of the most recent cases of this fraudulent cryptocurrency “investment system” was discovered after the capture of a band of scammers operating the AirBit Club site.

The organization, founded in 2015, used YouTube videos and held small working meetings with investors. It was presented as a platform for cryptocurrencies, trading, partner clubs, and marketing networks.

Sometimes the leaders of the gang asked their members to make a small investment of $1,000 in order to obtain memberships in the future. After the members of the criminal organization were exposed and captured, authorities discovered exactly how they operated.

The leaders of the gang, Guatemalan Pablo Renato Rodríguez and Brazilian Gutemberg Dos Santos, were accused of spending some $20 million from defrauded investors on cars, jewelry, and luxurious houses. They were charged with electronic fraud and money laundering.

Each of these crimes could mean sentences of up to 20 years in prison and another 30 years for the crime of bank fraud. Both Pablo Renato Rodríguez and Gutemberg Dos Santos are detained in the United States. Dos Santos was arrested in Panama and later extradited.

SEC Warns of Crypto Fraud

The United States Securities and Exchange Commission (SEC) has published an alert manual for users in order to avoid cryptocurrency fraud under Ponzi schemes.

The red flags that every investor should be aware of before investing in crypto are the following:

  • Promises of “high return on investment with little or no risk” and full guarantees.
  • “Too consistent returns” where investments remain constant over time.
  • Investments without registration with state regulatory bodies.
  • Companies selling investment opportunities without a license.
  • “Secret fees and strategies” or complex investment structures that are difficult to understand.
  • Do not ask for any type of minimum qualification from the investor (income, equity, etc.).
  • “Problems with paperwork” that prevent the investor from seeing the conditions of the investment.
  • Difficulty receiving utility payments and suggestions to wait a little longer in order to get a higher profit.
  • Attracting investors through friends or groups with national, ethnic or religious affinity.

Cryptocurrency ICO Scams

Other forms of crypto scams are fraudulent ICOs (initial coin offering), which are fashionable today in the market. This form of financing, which is similar to crowdfunding, is commonly used by startups when they decide to launch new cryptocurrencies.

The goal is to raise money by selling tokens under the promise of high returns. In this way, when the company begins to generate the first profits, then the initial investors can exchange their virtual currency for fiat money.

Of course, in this type of cryptocurrency fraud, fraudsters do offer fake whitepapers, roadmaps of a serious business plan, and detailed information related to the human team behind the crypto project. They sometimes even share links to LinkedIn to make the deception more convincing.

On The Flipside

  • Another way to make a fraudulent investment project attractive and deceive investors is to use famous people.
  • These celebrities are credited with statements of support for the project that they have never given (fake news). Or, scammers take pictures of themselves with celebrities as a display of status.

Why You Should Care?

  • If investors do not take the precaution of Googling such information, then they can become convinced of what the fraudster has said the celebrity said.
  • For this reason, the authorities advise against doing this type of business with unknown people or cryptocurrency platforms.
  • If you are just starting out, before making any investment in cryptocurrencies, you should take advice and analyze the investment you are making very well.


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Beware of Cryptocurrency Scams!

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