Crypto-Asset Scams: How to Detect Them and Protect Yourself?
This article is also published in French and is available at the following link
In the world of crypto-assets, it is essential to remain vigilant. Since May 2022, the number of scams observed has been continuously increasing.
The reason: the crypto-asset market has been experiencing a bearish phase since that time. However, scammers try to exploit the trust of non-experts in this sector by promising astronomical returns based on the bullish trend of the months preceding the May 2022 crash.
There are numerous warnings, but unfortunately, they are insufficient (see the warnings from the FSMA in 2020, 2021 & 2022). The press also echoes these scams (read here the investigation by L'Echo on Trader House or my interview in BeCrypto-Le Soir).
Despite these warnings and repeated cautions, scammers continue to outdo themselves in ingenuity, and the number of victims continues to rise. It has been months now that I have been assisting victims in such situations, and there are similarities present in many cases.
In this article, I identify them to allow you to understand how to distinguish a legitimate offer from a potential scam. Let me guide you.
The "boiler room" scam
The so-called "boiler room" scam is a technique where individuals contact consumers, often by phone/messaging (WhatsApp, Telegram, etc.), and without invitation, to offer them to buy shares or other financial instruments. In recent years, the range of products and services offered has expanded to include crypto-assets. Although these "boiler rooms" portray themselves as legitimate service providers, with well-designed websites and professional documents, they are in reality fraudulent. The offers they present are either fictitious or of no real value.
Typically, the consumer is seduced by a modest initial investment that appears quickly profitable. Once confident, they are then asked to gradually increase their stakes. The profits disappear and when they try to withdraw their funds, they are faced with additional and costly conditions (payment of a "security" provision, taxes & duties, trading commission, etc.).
The fraudsters exert intense pressure on the consumer, urging them to invest more and more money (hence the term "boiler room" which evokes high pressure).
In the end, the consumer never manages to recover the sums invested.
The regulatory framework: your first line of defense
Firstly, it is crucial to understand the regulatory context surrounding crypto-assets. If an entity offers to buy or sell crypto-assets for traditional currency (euro, dollar, etc.), it must be authorized by a regulator.
Always check the accreditation of the platform before engaging.
Always ensure you know the identity of the company offering you financial services (official name, head office address, etc.). If a company's information remains vague or undefined, it is better not to trust it. Moreover, if this company is based outside the European Union, know that resolving a possible dispute could be more complex.
How? By consulting its website and searching for its registration number with the competent authority of the country where it is based.
The FSMA (in Belgium) and IOSCO (international) have set up tools that list irregularly active companies.
Caution: the absence of a warning about a company does not automatically mean it is authorized to offer financial services.
Although the FSMA strives to publish alerts quickly, some companies may operate illegally in Belgium without being detected. It should be noted that these malicious entities often change their name to evade surveillance.
The warning signs: recognizing the methods of scammers
Beware of the methods employed by certain actors.
Scammers have developed a plethora of techniques to deceive investors, even the most informed. Recognizing these warning signs is essential to protect yourself against scams:
Unrealistic promises: Exceptionally high returns promised in a short time are often a sign of a scam. If an offer seems too good to be true, it probably is, and you should be wary.
Pressure to invest: Scammers often use pressure tactics, claiming it's a "not-to-be-missed opportunity" or a "limited-time offer".
Lack of transparency: If a platform or entity does not provide clear information about its operations, its owners, or its headquarters, it's an indicator of a potential scam.
Too perfect testimonials: Testimonials from supposedly satisfied investors, often accompanied by photos of prosperous individuals, can be fabricated to deceive new investors.
Requests for payment by unconventional means: Scammers may ask for payments via gift cards, untraceable money transfers, or other non-traditional methods.
Frequent name or identity changes: As mentioned earlier, malicious companies often change their denomination or identity to escape detection. In scams, a multitude of actors, investment advisors, or traders succeed one another to "fool" the victim and give substance to the story.
Lack of clear communication: If a company is difficult to contact or does not respond transparently to your questions, this can be a sign of a scam.
Poor quality websites: A sloppy web design, spelling or grammar mistakes, or non-functional links can indicate a lack of professionalism and, potentially, a scam.
Excessive requests for personal information: Be wary if you are asked for information that does not seem relevant to the planned operation, such as personal details unrelated to the investment.
Absence of regulation: As mentioned previously, any entity operating in the field of crypto-assets must be regulated. If not, it's a clear warning sign.
Mode of communication: If someone offers to carry out transactions by remotely controlling your computer (via tools like VPN, AnyDesk, TeamViewer, etc.), it's a red flag. Can you imagine allowing your banker to access your computer to carry out operations? It's unthinkable and, above all, illegal.
According to the FSMA's recommendations, it is also necessary to:
Be on your guard against unsolicited solicitations: if you receive a call or an email offering you a financial deal without you having requested it, it's often the prelude to an attempted scam.
Be cautious if you are asked to transfer money to countries that have no connection with the company concerned or your place of residence. In the context of scams such as "boiler rooms", it is common to ask for transfers to foreign accounts.
Remain critical of miraculous profits. Scammers like to dazzle with significant profits from the start. Problems usually arise when you want to recover your investment.
Do not take for granted the statements of companies. Some may claim to be regulated when they are not. Always check the information received.
Stay vigilant against "clone" companies. These are entities that impersonate legitimate companies without being affiliated. Check email addresses and contact details to spot these shams and do not be fooled by typosquatting.
Demand clear explanations from your interlocutor. Never put money into something you do not fully understand.
Be extra cautious if you are asked for an additional payment or tax to access your profits. These requests are often indicative of a scam.
Company executives must be particularly attentive. "Boiler rooms" often target this group specifically.
The sneaky approach of scammers
Scammers often have a similar approach: they first gain your trust with small investments, show extreme dedication, and some even go so far as to carry out operations for you.
Once you are confident, you will be tempted to invest more. But when you want to withdraw your funds, problems will start. They might ask you to pay fictitious taxes or duties on the gains made. It's a classic strategy to extract even more money from you.
Here are some techniques I've observed in the scams I've encountered:
The first impression: Scammers often invest in professional websites and high-quality marketing materials to give a strong and legitimate first impression.
Artificial urgency: Scammers often create a sense of urgency, suggesting that their offer is time-limited or that you will miss a golden opportunity if you hesitate.
Initial gains: To gain your trust, they may show you initial gains on your investment. These gains are fictitious, designed to entice you to invest more.
Secrecy: They may advise you to keep your investment secret, claiming that it's an exclusive opportunity or to avoid an overload of requests. This aims to isolate you from outside advice that could alert you to the scam.
False references: Scammers may present false references or testimonials from other "investors" who have supposedly benefited from high returns.
Avoidance: If you ask difficult questions or request proof of their legitimacy, they may dodge, change the subject, or provide vague answers or even fake documents.
Incessant demands: Even after you've invested, they may continually push you to invest more, citing new opportunities or risks that require more capital.
Common pitfalls
Many are trapped by sponsored ads on social media, featuring public figures praising the merits of a platform.
Do not be fooled: these advertisements are often fake. Moreover, beware of promises of dazzling returns. In some cases, your first investment will seem successful, but it's a strategy to encourage you to invest more.
Recovery room: the second scam
One last point concerns recovery services or "recovery rooms". "Recovery rooms" are a type of scam that usually targets individuals who have already been victims of a previous fraud.
Here's how it works and what you need to know:
How "recovery rooms" operate
Initial contact: Scammers contact a person who has already been a victim of fraud, claiming to be industry professionals.
Promise of recovery: They promise to recover the money lost in the initial fraud, for a fee or charges to be paid on the recovered amount.
Advance fees: Before being able to "recover" the money, victims are often asked to pay initial fees, which can be presented as legal, administrative, or other fees.
No real recovery: Once the fees are paid, scammers usually disappear without providing the promised service. In some cases, they may even return asking for more fees, claiming that complications have arisen.
What to remember:
Targeting previous victims: "Recovery rooms" specifically target individuals who have already been victims of scams because they are often desperate to recover their money and may be more vulnerable to new deception.
Look for warning signs: Demands for upfront payment, guarantees of money recovery, and pressures to act quickly are all red flags.
Never pay upfront: Legitimate recovery services or lawyers do not ask for upfront fees to recover money lost to fraud.
Do your research: If you are contacted by a company or individual claiming to be able to recover lost money, conduct thorough research on them before making a decision.
Report scams: If you think you have been contacted by a "recovery room" or have been a victim of such a scam, report it to the appropriate authorities.
In summary, "recovery rooms" are another layer of scam that specifically targets those who have already been victims. It is essential to remain vigilant and always exercise caution, especially when it comes to recovering lost money.
What to do in case of a scam?
The only possible course of action to try to recover the funds is to file a criminal complaint. In Belgium, only the judicial power has the right to carry out seizures or coercive measures to recover defrauded funds. A lawyer can intervene to maximize your chances of recovery by filing a complaint with the civil party in the hands of an investigating judge. This judge has greater investigative power and prerogatives that will allow them to more easily find the perpetrator(s).
In addition to a criminal complaint, it is possible to order from a specialized company a traceability and investigation report regarding the crypto-assets that were sent to the scammer.
The traceability report will not allow the identity of a person to be obtained but only the identification of the addresses through which your crypto-assets have passed.
After gathering this information, the traceability report identifies the centralized exchange platforms (CEX) that would host the addresses through which your crypto-assets have passed.
Based on these elements, the work of the investigating judge is facilitated since they have an interlocutor (a CEX) and an address. CEXs have a client identification process (KYC for Know Your Customer in application of anti-money laundering provisions) and are able to transmit the personal details of the person using the address on the CEX.
Finally, it is important to note that reporting these scams is necessary because, sooner or later, the crypto-assets will be identified. The most famous case in this regard concerns the Bitfinex hack that took place in 2016. In 2021, the USA seized nearly 3 billion dollars in Bitcoin, which came from this hack (read about the subject here and the cited sources).
Conclusion
The present contribution aims to raise awareness among people who wish to respond to similar solicitations and who have doubts about the reality and legitimacy of the services being offered to them. On this matter, if the slightest doubt exists, avoid investing as the number of frauds is growing rapidly. By staying informed and vigilant, you can navigate this universe safely. Before you start, do your research, ask questions.
And if you need to track stolen funds:
