Rise in crypto scams: One investor nearly lost $200k

Cryptocurrency users are being targeted by fraudsters. Photo / AP

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

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

“A difficult economic climate with a looming recession, and many consumers left vulnerable from natural disasters, means that many New Zealanders will be open to what looks like the opportunity to make a ‘quick buck’ legitimately, especially with the approach of financial year-end,” Grainger said.

Around 20 per cent of Kiwis are estimated to invest in cryptocurrency.

Grainger said there were a lot of preconceptions about who fell for scams and that it was largely older people who were cold-called via their landlines.

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

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

Grainger said scams tended to come in waves.

“The scammers are international and they are working to target different groups of people in different countries with different scams. They will just go very targeted with one scam for a while then that will ease up and another one will take its place - there is never really a time where there aren’t scams or scam attempts and that is probably the key message we want to get out, that scams are always out there and people need to be vigilant.”

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

But instead of being legitimate, the fraudsters were asking investors to provide their private keys for their digital wallet in order to be eligible for the airdrop.

“They make it look like it is part of an airdrop and a legitimate thing to do and then people find their entire wallet has been emptied. That type of scam does target the more active crypto user rather than the new crypto investor.”

Janine Grainger, chief executive of Easy Crypto.

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

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

“But if you stop and think about them it is a bit of an odd thing - why would you need to send money to receive a giveaway?”

Last month the Financial Markets Authority (FMA) warned about a company that was contacting people through WhatsApp to trade in cryptocurrencies.

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

The FMA said the company did not appear to be subject to regulation by any overseas regulator and it recommended taking caution.

Jordan Heersping, Cert NZ manager of incident response, said since spiking in 2021, cryptocurrency scams reported to it had dropped back to almost 2020 levels.

“The amount lost to these scams, however, 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 set up fake websites, which 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 can be enough to draw in unwary investors.”

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

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

Investors thought they were buying an online course which was charging €150 ($257) but were instead being scammed.

Grainger said it also used blockchain analytics to look at which wallets its customers were sending currencies to. If it was flagged in the growing international database of scam addresses, it stopped the transaction and talked to the customer about the risks.

Red flags

Grainger said the biggest red flag people could watch out for was if the opportunity or investment approached them.

“If you get a phone call from someone, they sent an email, were targeted with some advertising online, someone has approached you through direct messages in a social media platform. Any of those things - it’s 99 per cent likely that’s a scam.”

She urged people to do their own research on potential investments, look at where a business is registered and if it is a registered financial service 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 could be quite risky.

“When you are talking crypto in your own wallet never disclose your private keys, even if it looks like an official thing - even if it looks like you need to put in your private key or passphrase to receive some sort of deal - that’s the way for someone to clean out your wallet. Always keep your private keys or passphrase secure.”

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

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

Some Kiwis were also being double-scammed by fraudsters who promise to help retrieve their money. In December the FMA said it had received a complaint about a company that claimed to be able to help the person recover their stolen cryptocurrency.

The company, called Krypto Security, had charged large fees in its recovery process including a payment for a “barcode” to meet the New Zealand Anti-Money Laundering legislative 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 any other area, to do their due diligence.

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