Partner Mark Hastings explores crypto investment fraud in The Times



December 7, 2023

In light of Lloyds Bank issuing an urgent warning about crypto investment fraud, Partner Mark Hastings discusses how robust regulation and education are key to combating investment scams on social media.

 

Mark’s article was published in The Times, 7 December 2023, and can be found here.

Investors face an increasing risk of being defrauded by crypto investment scams on social media. That is the warning from Lloyds Bank, which recently highlighted a 23% rise in scam victims among its customer base this year. This follows announcements from Action Fraud about the danger of scams on platforms such as WhatsApp which have also soared.

Much like traditional investment frauds, this type of crypto scam relies on duping victims into authorising payments which they believe will finance genuine investments. The message is clear: if social media is being weaponised by fraudsters as a productive medium for such scams, then education is critical to prevent individuals from being duped and protect them from the consequences.

More broadly, the use of social media forms only one part of an alarming rise in financial crime across the digital asset sector. The tactics deployed by organised criminal gangs are continuously evolving to exploit new trends and trick more victims into parting with their money.

They often go to great lengths in order to convince potential investors that they are genuine. Enabled by technology such as generative AI, bot accounts and SIM farms, fraudsters have become much more adept at impersonating individuals, cloning genuine websites or phone numbers, and creating fake profiles, which act as the perfect cover for a lucrative investment scam, particularly relating to cryptocurrencies.

Although robust regulation certainly needs to be implemented to police the burgeoning crypto sector and to safeguard investors, it is also vital that financial institutions do more. They need to be proactive in educating their customers on the potential dangers of investment fraud and introduce effective reporting measures that can swiftly flag and disrupt fraudulent payments.

Typically, would-be crypto investors make three payments on average before they realise that they have been scammed. In the belief that they are making a genuine investment to a registered company, it can therefore take more than 100 days for victims to flag these fraudulent payments – by which time it is invariably too late to take effective action. Further, the relatively low value of the average crypto investment means that the costs of issuing legal proceedings to identify the wrongdoers and where their assets are located can outweigh the value of the investment.

The most common age range of crypto scam victims is 25 to 34-year-olds. As young people are increasingly targeted on social media, with some losing thousands of pounds to online fraudsters, the Lloyds report serves as a timely reminder of the importance of education and reporting in curbing the tide of crypto investment scams.

Arguably the best way of combating them is to address the issue at source: educating people about staying safe online (including two-step verification for social media accounts) to avoid becoming a target in the first place; increasing customer awareness and understanding of such scams; and encouraging the rapid reporting of fraudulent payments as soon as they are identified. If in any doubt, use the FCA website to check for warnings about fake firms or source genuine company contact details.