Rise in crypto scams: One investor lost nearly $200,000

A growing number of young people and professionals are falling for cryptocurrency scams with one Kiwi nearly losing $200,000 in a scam earlier this year.

Janine Grainger, CEO of cryptocurrency exchange Easy Crypto,
said it had seen a sharp increase in the number of people being targeted by crypto scams, with the company stopping nearly $165,000 worth of scams from proceeding in the past two months alone, on top of the large transaction in January.

“A difficult economic climate with a looming recession, and many consumers vulnerable after natural disasters, means that many New Zealanders will be open to what looks like the opportunity to make a ‘quick buck’ in a legitimate way, especially with the approach until the fiscal year — end,” Grainger said.

Around 20 percent of Kiwis are estimated to invest in cryptocurrency.

Grainger said there were many preconceived notions about who fell for the scam, and that it was mostly older people who got caught on their landlines.

But she said that was not the case with the figures showing that only a third of those caught in crypto scams involved people over the age of 60.

“We see young people fall for scams on Instagram, we see business people fall for scams, we see experienced crypto people fall for scams. It can happen to anyone.”

Grainger said fraud tended to come in waves.

“The scammers are international and they work to target different groups of people in different countries with different scams. They’ll just go very single-minded with one scam for a while, then it’ll ease off and another one will take its place – there’s never really a time when there’s not a scam or an attempted scam, and that’s probably the key message we want to get out there , that scams are always out there and people have to be on their guard.”

Romance and investment scams were an ongoing problem, but Grainger said a new type of scam was starting to see airdrops involved. Airdrops are usually marketing stunts that involve sending free coins or tokens to a person’s digital wallet as a way to increase awareness of a new digital currency or token.

But instead of being legitimate, the scammers asked investors to provide their private keys to their digital wallet to be eligible for the airdrop.

“They make it look like it’s part of an airdrop and a legitimate thing to do, and then people find that their entire wallet is emptied. That kind of scam targets the more active crypto user instead of the new the crypto investor.”

Grainger said in some cases, crypto investors were asked to deposit one coin or token to get two back.

“Sometimes they’ll pretend they’re Easy Crypto – they say Easy Crypto is celebrating its fifth birthday – send us one Ethereum and we’ll send you two back – as a giveaway to celebrate. It’s plausible.

“But if you stop and think about them, it’s kind of weird — why do you have to send money to receive a giveaway?”

Last month, the Financial Markets Authority (FMA) warned of a company contacting people through WhatsApp to trade cryptocurrencies.

It received a complaint from a Kiwi who had funds unreasonably withheld by Global Venture and the company was said to be requesting additional funds to allow the money to be withdrawn from the investor.

The FMA said the company does not appear to be subject to regulation by any foreign regulator and it advised caution.

Jordan Heersping, Cert NZ head of incident response, said since the spike in 2021, cryptocurrency fraud reported to it has fallen back to near 2020 levels.

“However, the amount lost to these scams has increased,” Heerspring said.

In 2020 the amount reported as lost to Cert NZ was $620,000, but that rose to $1.1m in 2021 and $1.8m last year.

Heersping said cryptocurrency investment scammers often sent out emails or created fake websites that advertised attractive returns.

“The scammers use social engineering tactics, creating a sense of urgency and a fear of missing out on a lucrative opportunity. Combined with the hype that still exists with crypto, this could be enough to draw in unwary investors.”

Grainger said her company put a lot of focus into trying to identify fraud, including tracking patterns on the exchange.

“We had one a little while ago where a lot of people were doing very specific amounts like $221 or $223, when people would normally buy $200 or $300.”

Investors thought they were buying an online course costing €150 ($257) but were instead duped.

Grainger said they also used blockchain analytics to look at which wallets their customers were sending currencies to. If it was flagged in the growing international database of fraudulent addresses, it stopped the transaction and spoke to the customer about the risk.

red flags

Grainger said the biggest red flag people could look out for was whether the opportunity or investment was approaching them.

“If you get a phone call from someone, they sent an email, were targeted with online advertising, someone approached you through instant messaging on a social media platform. Any of those things – it’s 99 percent likely that it’s a fraud.”

She encouraged people to do their own research about potential investments, look at where a business is registered and whether it is a registered financial services provider in New Zealand.

Grainger said it was also safer to keep cryptocurrency in your own digital wallet rather than storing it with a third party, which can be quite risky.

“When you talk crypto in your own wallet, never reveal your private keys, even if it looks like an official thing – even if it looks like you need to enter your private key or passphrase to receive some kind of agreement – that’s the way for someone to clean your wallet. Always keep your private keys or passphrase safe.”

She said that once a transaction had gone through, it was not reversible.

“This is why we try to give people warnings to stop transactions before they’re sent if we think there’s a concern there.”

Some Kiwis were also double-scammed by scammers promising to help retrieve their money. In December, the FMA said it had received a complaint about a company claiming to be able to help the person recover stolen cryptocurrency.

The company, called Krypto Security, had charged large fees in the recovery process, including a payment for a “bar code” to meet New Zealand’s anti-money laundering legal requirements.

“We note that there is no such requirement in New Zealand,” the FMA said in its warning.

Cert NZ’s Heersping urged those who may be interested in investing, in cryptocurrency or other areas, to do their due diligence.

“Take a moment to think about the offer and where it came from. Scammers will often search social media platforms and may use other scam techniques, such as those seen in romance scams, to build trust before sending investment scams.”