Crypto scams can cause a significant loss to investors (both retail and institutional). Ergo, regulators are taking steps to offset scam losses. In this case, the California regulator released a tracker to help investors fight bad actors.
Bad actors have undertaken various steps to steal funds. The increase in scams using a combination of spoofing and phishing to offer initial coin offerings (ICOs) or newly issued tokens/coins at too-good-to-be-true prices are a growing concern in the cryptocurrency industry.
These scams often target individuals who are new to the industry and lack knowledge of the underlying technology. Thus, making them vulnerable to fraudulent schemes. Spoofing and phishing tactics are used by scammers to disguise them as legitimate messages or websites. Spoofing involves falsifying the sender’s identity, while phishing involves tricking the recipient into divulging sensitive information, such as passwords or financial data. The combination of both tactics is commonly used to create convincing scams.
With ICOs or newly issued tokens/coins, scammers often create fake websites or social media accounts mimicking legitimate offerings. They may offer the tokens/coins at prices seductively below market value or promise high returns on investment. Unsuspecting investors who fall for these scams may lose their investment or personal information.
Maintaining Caution against Bad Actors
To avoid falling victim to these scams, conducting thorough research and due diligence is crucial before investing in any ICO or newly issued token/coin. This includes researching the project team and their backgrounds. Reviewing the project’s whitepaper and technical documentation, and checking for any red flags or warning signs. Promises of guaranteed returns or pressure to invest quickly are red flags.
Finally, it is essential to remember that if an investment opportunity seems too good to be true, it probably is. Risks are always involved with any investment so “do your own research” (DYOR) is essential. Investors should be cautious and take steps to protect themselves from fraudulent schemes.
Regulators Taking Steps to Stop Bad Actors
To combat the growing crypto scams, the California Department of Financial Protection and Innovation (DFPI) released a tracker to help traders and investors spot possible industry threats.
The Crypto Scam Tracker is an online tool allowing investors to report suspected cryptocurrency-related illicit activities. Designed to help the California Department of Financial Protection and Innovation (DFPI) identify and track fraudulent activities in the cryptocurrency market. Users can provide details about the fraud, such as the name of the company or individual behind it, and the money lost.
The DFPI will use the information the Crypto Scam Tracker provided to investigate suspected scams and take action against the perpetrators. The tool also provides users with information about common cryptocurrency scams and tips on how to avoid them.
How Does the Tool Operate?
The tool aims to help Californians “spot and avoid crypto scams.” Thereby acting as a database searchable by company name, scam type, or keywords — for investors/customers. The tracker details apparent crypto scams identified through a review of complaints submitted by the public.
It allows California consumers and investors to do their research and prevent harm to themselves and others.
Further, the team shared a screenshot with BeInCrypto quoting DFPI Commissioner Clothilde Hewlett over mail.
This initiative by the California regulator is an essential step in protecting investors from fraud in the cryptocurrency space. Cryptocurrency scams are becoming more sophisticated, and many investors are falling victim to fraudulent schemes.
Elizabeth Smith, a spokesperson for the DFPI, told BeInCrypto:
“Our hope is that this tool will be a resource for Californians to use before they are targeted or make financial decisions and help Californians from falling prey to prevent future scams. We also want to encourage people to report scams — it helps us keep all Californians safe.”
Such steps mark positive developments to raise awareness about the risks of investing in cryptocurrencies. Even provide investors with the tools they need to protect themselves.
Scams to Watch out
Worryingly, most of the reported scams started on social media. Sophisticated social engineering scams dupe victims to take action on Facebook, Instagram, TikTok, and dating apps. Meanwhile, DFPI referred to one of the most recurring illicit activities as “pig-butchering scams.”
In addition, WhatsApp (and WhatsApp Groups) seems to be the tool of choice for crypto scammers to spread uncertainty. Perpetrators use WhatsApp as a communication tool to find victims due to its ease of use, broad reach, and end-to-end encryption. While WhatsApp has addressed this issue, more needs to be done to prevent misusing the platform.
Combating Scams on WhatsApp
One step WhatsApp has taken to combat misuse is creating a feature that allows users to report suspicious or inappropriate behavior. This feature allows users to report users that they find concerning. Reports are then reviewed by WhatsApp’s safety team.
WhatsApp has also taken steps by limiting the number of people who can be added to a group. This is designed to prevent large groups that are often difficult to monitor and moderate. Limiting the size of groups encourages smaller, more manageable groups. However, there is still more that WhatsApp can do. For example, they could develop more sophisticated algorithms to detect and flag inappropriate behavior. Additionally, more robust tools for moderators to manage and moderate group chats.
WhatsApp could work with law enforcement agencies to provide training and support for identifying and responding to cases of abuse or exploitation reported through the platform.
And while WhatsApp has taken steps to address misusing the platform to lure victims, there’s still more work to be done. By developing more sophisticated tools and working with law enforcement agencies, WhatsApp can help make their platform safer and more secure for everyone.
Other US Regulators Taking Charge
Other US states have initiatives to raise scam awareness and protect consumers from scams. Examples include:
- New York: The New York State Attorney General’s Office has a “Consumer Frauds and Protection Bureau” that investigates and prosecutes scams. The bureau also provides resources and tips to help consumers avoid scams.
- Texas: The Texas Attorney General’s Office has a “Consumer Protection Division” that helps consumers who have been scammed. The division also provides information on how to avoid scams.
- Florida: The Florida Department of Agriculture and Consumer Services has a “Consumer Protection” webpage that provides information on common scams and how to avoid them. The webpage also allows consumers to file a complaint if they have been scammed.
Regarding a Federal scam search site or policy, the Federal Trade Commission (FTC) is the primary federal agency responsible for protecting consumers from scams. The website, www.ftc.gov, provides information on scams and allows consumers to report scams. The FTC also has a national Do Not Call Registry that will enable consumers to opt out of telemarketing calls. Additionally, there have been discussions about the possibility of creating a centralized scam reporting system. Still, an official federal scam search site or policy has yet to be in place.
The Cryptocurrency Space Needs Work
Such narratives mentioned above raise questions regarding cryptocurrencies. Despite crypto’s growth, there’s room for development. Several protections are missing in crypto compared to traditional finance (TradFi) available to Main Street (retail) investors.
Here are some examples:
Investor Protection: In the traditional financial system, several regulatory bodies provide investor protection, such as the Securities and Exchange Commission (SEC) in the United States. These regulators oversee the securities markets, ensure that companies are transparent, disclose material information, and protect investors against fraud. However, centralized regulatory bodies must provide such protections in the crypto space. Cryptocurrencies’ decentralized and global nature makes regulating and enforcing investor protections challenging.
Insurance: Traditional financial institutions such as banks and brokerage firms often offer insurance coverage to protect customers’ funds. However, many crypto exchanges and wallets do not provide insurance coverage, leaving investors vulnerable to hacking and other cyber-attacks.
Clearing and Settlement: Clearing and settlement systems in TradFi ensure trades are processed accurately and promptly, reducing the risk of counterparty default. In contrast, the settlement process for crypto transactions can be slow and uncertain. Thereby, increasing the risk of fraud and losses for investors.
Market Manipulation: Traditional financial markets are subject to laws and regulations that prevent market manipulation. Insider trading and price fixing are punishable by hefty fines and imprisonment. However, the unregulated nature of the crypto market makes it more susceptible to these types of illegal activities.
Transparency and Disclosure: Traditional financial markets have stringent requirements for transparency and disclosure, such as financial reporting and auditor reviews.
Some Final Thoughts
Many crypto projects and companies need precise reporting requirements, making it difficult for investors to assess their investments’ value and risks. Overall, the need for more regulatory oversight and investor protection in the crypto space, especially due to its decentralized nature. This makes it challenging to regulate and enforce rules across multiple jurisdictions.
Additionally, the crypto industry’s fast-paced and rapidly evolving nature makes it challenging for regulators to keep up with the latest developments and ensure adequate investor protection.
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