SEC Issues Warning About Five Common Crypto Scams Investors Should Watch Out For
The Office of Investor Education and Advocacy at the U.S. Securities and Exchange Commission (SEC) has released an alert, drawing attention to five prevalent cryptocurrency scams that investors should be cautious of in order to avoid financial losses. The SEC has warned that fraudsters are taking advantage of the popularity of cryptocurrencies by using sophisticated methods, making it difficult to recover funds. For instance, the regulator states that scammers may engage in pump-and-dump schemes involving crypto assets, including “memecoins” that reference popular culture or internet memes.
SEC’s Cautionary Notice Regarding Crypto Scams
The SEC’s Office of Investor Education and Advocacy issued an Investor Alert on Wednesday, raising concerns about the growing threat of scams related to crypto asset securities. The regulator emphasized that fraudsters are increasingly exploiting the widespread interest in cryptocurrencies to deceive retail investors, and highlighted that these scams often involve intricate techniques, posing challenges when it comes to reclaiming stolen funds. The SEC issued the following caution:
Fraudsters employ various strategies to convince investors to surrender their hard-earned money.
The alert provides detailed information on five common tactics utilized by fraudsters. Firstly, scammers establish trust through social media or unsolicited text messages, pretending to be acquaintances. They swiftly transition conversations away from the initial platform, build relationships, and propose attractive crypto investment opportunities. They create websites that appear legitimate but are actually fake, showcasing false profits and enabling small withdrawals in order to gain trust before soliciting larger sums, which subsequently become unattainable.
Secondly, fraudsters capitalize on the excitement surrounding emerging technologies such as artificial intelligence (AI). They employ AI-related buzzwords and make claims of high returns to entice investments. AI technology is also utilized to create realistic websites, marketing materials, and deepfake content, imitating celebrities or trusted individuals to instill confidence. Thirdly, scammers impersonate trusted sources, including government agencies like the SEC. They leverage AI technology and compromised social media accounts to send messages that appear to originate from friends or family members, promoting fraudulent investment opportunities. Even if a pitch seems to come from a familiar individual, it could be a scam.
Fourthly, the SEC cautioned:
Fraudsters may engage in pump-and-dump schemes involving crypto assets, including so-called “memecoins” that reference popular culture or internet memes.
“For example, scammers may create a memecoin and then promote it on social media – sometimes labeling it as a ‘pre-sale’ – to encourage others to buy and inflate its price. Subsequently, the promoters or their associates sell their holdings, or ‘dump,’ before the hype subsides, thereby profiting from the inflated price,” noted the securities regulator. “Typically, after the promoters sell and earn their profit, the price rapidly declines, causing most token buyers to lose a significant portion of their investment.”
Lastly, fraudsters demand additional payments for withdrawals, a practice commonly known as advance fee fraud. They may assert that accounts are frozen or under investigation, or request repayments for allegedly erroneous deposits. Scammers also target previous victims, promising to assist in the recovery of lost assets in exchange for additional payments or access to private keys, resulting in further financial losses. In conclusion, the SEC advised investors to refrain from making decisions influenced by unsolicited communications or social media recommendations, emphasizing the importance of independently verifying any claims and exercising caution when dealing with investments that require payment via cryptocurrencies.
Have you come across any of these five crypto scams highlighted by the SEC? Let us know in the comments section below.
