In simply the primary half of this yr, funding scams conned Canadians out of $161 million—most of it misplaced to cryptocurrency scams, in keeping with the Canadian Anti-Fraud Centre (CAFC). “Crypto investments are the highest sort of funding scams reported to CAFC,” says Jeff Horncastle, the group’s appearing shopper and communications outreach officer. He provides that fewer than 5% of scams are reported, so the precise numbers are probably a lot greater.
Scammers typically discover victims on social media
Cryptocurrency scams are sometimes intertwined with different forms of scams—and the criminals behind them solid a large internet. “Sadly, everyone seems to be focused,” Horncastle says.
Con artists ceaselessly discover potential marks on social media. Based on an evaluation by TradingPlatforms primarily based on FTC knowledge, practically one-third of social media crypto fraud occurs on Instagram, and one-quarter on Fb.
“In some circumstances, the rip-off begins as a romance rip-off and shortly turns into an ‘funding alternative,’” says Horncastle. “As a result of suspects have gained the sufferer’s belief, it will probably result in a high-dollar loss for the sufferer.”
10 forms of crypto scams
There are numerous forms of scams to be careful for, and sadly, as traders get savvier, the cons evolve and develop into trickier to identify. To guard your self, at all times know the place your cash goes, perceive the crypto promoting guidelines in Canada, and solely use trusted and compliant crypto buying and selling service suppliers. (As a place to begin, see MoneySense’s picks for the high crypto platforms in Canada, that are all registered with Canadian securities regulators.) An exhaustive record of crypto scams is probably going inconceivable, however to guard your self, listed below are 10 to be careful for.
1. Pump-and-dump, or rug pull
In a “pump and dump” or “rug pull” scheme, promoters of a cryptocurrency hype it as much as increase demand, and when the worth soars, they promote all their cash for a fast revenue. As a result of they promote in giant volumes, different traders get nervous and promote their cash, too. As panic units in and the promoting spreads, the coin’s worth plunges. The promoters get wealthy and small traders are left “holding the bag,” confronted with big losses.
A infamous instance of an alleged crypto pump-and-dump scheme is a coin known as Squid Recreation. Launched in October 2021, it rode the recognition of the Netflix sequence of the identical identify—regardless of having no affiliation. Lower than two weeks later, Squid Recreation’s crypto builders abruptly offered their holdings when the coin’s worth hit $2,800, making themselves $3.3 million richer (all figures in U.S. foreign money). Right now, one Squid coin is price a few tenth of a penny.
The pump-and-dump rip-off is just not distinctive to crypto, after all. It’s what high-flying stockbroker Jordan Belfort—the topic of the Hollywood movie The Wolf of Wall Road, starring Leonardo DiCaprio—engaged in in the course of the Nineties. His agency was accused of artificially inflating the worth of penny shares earlier than promoting their shares to make a number of quick cash—costing traders as much as $200 million. Within the early 2000s, Belfort served 22 months in federal jail for securities fraud. He’s now advertising himself as an funding guru.