Tuesday , July 23, 2024

‘Pig Butchering’ Is the Latest Scam to Defraud Consumers of Cryptocurrency

As if cryptocurrency didn’t have enough problems with the financial failure of the major FTX exchange, plummeting values, and, most recently, links to two of the biggest bank failures in U.S. history, now criminals are running scams built around crypto trading to defraud consumers.

The scams, known as “pig butchering,” are a variant of the so-called romance scams in which criminals adopt an online persona to make contact online with unsuspectings victim to gain their trust and defraud them.

The scam, which got its name because it metaphorically fattens up the victim before the criminal goes in for the kill to steal money, uses social engineering to make contact with potential victims through social media or text messages. The contact engages the victim in long-term communication to establish a friendship. The criminal then proposes the victim invest in cryptocurrency through Web sites and apps, fake brokers, or liquidity-mining pools that appear to be real but are controlled by the criminal enterprise.

Scammers pose as highly successful traders in cryptocurrency and groom their targets to invest through sham Web sites. Once victims invest enough money, the scammers take it all and vanish,” says Maya Shabi, a payment and risk specialist for EverC, an artificial-intelligence and management-platform provider.

According to Shabi, the FBI reported pig-butchering scams defrauded consumers in the United States of $420 million in 2021. In addition, the U.S. Department of Justice in November seized Internet domains that defrauded five victims out of nearly $10 million.

Criminals troll for potential victims on dating and social-media sites, and even through random text messages that appear to be accidentally sent to a wrong mobile-phone number. After contact is established and the criminal has earned the victim’s trust, the criminal persuades victims to deposit money in digital-asset wallets, such as Coinbase, which are legitimate businesses.

In the next step, Shabi says, criminals persuade the victim to connect the funds in the wallet to a crypto-investment Web site or app they control. They then simulate account balances, profits, and losses, according to an FBI bulletin released earlier this month warning consumers about a spike in crypto-investment scams.

“Criminals coach victims through the investment process, show them fake profits, and encourage victims to invest more. When victims attempt to withdraw their money, they are told they need to pay a fee or taxes. Victims are unable to get their money back, even if they pay the imposed fees or taxes,” the bulletin says.

At that point, the criminal and their fake investment platforms disappear with the absconded funds.

“[Criminals] have developed creative ways of using financial services from trading platforms, payment providers, and banks, while hiding the true nature of their crimes,” Shabi says. “It’s critical for industry leaders to stay informed on this issue and take action to prevent it moving forward.”

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