Crypto investment fraud doubles in a year

Rebecca Tomes
June 28 2021
(IFA Magazine)


Multinational law firm Pinsent Masons report that crypto investment fraud has doubled as a result of investors falling victim to get-rich-quick scams.


The number of reports of cryptocurrency investment fraud in the UK have doubled in a year from 3,608 in 2019/20 to 7,014 in 2020/21 says Pinsent Masons, the international professional services firm with law at its core.

Fraudsters have been attracted to the sector by the increasing number of smaller retail investors that are looking to ‘get rich quick’ by investing in cryptocurrencies.

Hinesh Shah, Senior Associate Forensic Accountant and Financial Crime Investigator at Pinsent Masons, explains that the overwhelming publicity surrounding cryptocurrencies has attracted many investors into the class who lack some of the skills or experience to tell a legitimate crypto currency scheme from a fraudulent one.

The dramatic profits made by early investors in cryptocurrencies have also made the more outlandish claims of fraudsters seem credible.


Hinesh Shah comments:

“Fraudsters get attracted to almost all new investment trends, especially those that can hold out the prospect of outsized returns. What is different is the size of the retail investor feeding frenzy around cryptocurrencies, which has attracted many more sharks.

“Most of the crypto market is unregulated meaning that the regulators have fewer tools to stop the fraudsters.”

The rising number of cryptocurrency frauds mean enforcement agencies, such as the police, have struggled to keep up with the evolution of these scams. In the past year, fraudsters have used a number of techniques to defraud crypto investors, including:

• Impersonation giveaway scams, in which fraudsters pretend to be high-profile individuals such as Elon Musk, and promise to send back double the value if someone send them money in crypto

• ‘Rug pulls’, in which the developer of a ‘legitimate’ token steals the funds raised from investors

• ‘Pump-and-dump’ scams, the traditional technique used by equities fraudsters in which they create investor excitement around an asset and sell their own holdings when the price rises. This has been given new life in the unregulated crypto market

• Fraudulent Initial Coin Offerings (ICOs), in which the new token being ‘launched’ does not exist

Banks are starting to take action to protect consumers from cryptocurrency scams. For example, one high street bank recently issued a series of urgent warnings to customers after a record number of crypto scams were reported to them.

Pinsent Masons says that if a person has lost money through a crypto scam, a quicker alternative to try and recoup that money may be to pursue a civil claim rather than to just report it to the police and hope that they will have the capacity to prioritise your case. Fraud agencies and police forces do not have the resources to investigate every individual claim in depth, so, depending on the case, civil claims can be a quicker alternative to asset recovery.

Jennifer Craven, Senior Associate and Civil Fraud and Asset Recovery Specialist at Pinsent Masons, says:

“There seems to be a perception that if an online fraudster or hacker gets your funds then it is impossible to recoup those funds; that’s not always the case if you act fast and seek the right advice.”

The rise in crypto fraud may hasten greater regulation around cryptocurrencies. Recently, the SEC in the US has signalled a new, hawkish approach towards crypto investor protection. In the UK, the HM Treasury is set to shortly respond to a consultation on crypto regulation, meaning new regulation could offer crypto investors more protection in the future.


Jennifer Craven adds:

“Crypto scams have been on the rise as people try and take advantage of the surge in price of cryptocurrencies. Many thousands of retail investors have been victims of crime and been left out of pocket.

“The sharp rise in many cryptoasset prices over the past year has attracted a lot of new and inexperienced investors into the market. Its unregulated nature means that it is a very friendly ecosystem for fraudsters. Technology makes it very easy to impersonate Elon Musk’s email or social media account and take advantage of unwary investors.

“High street banks are being cautious around crypto transactions to try to help prevent their customers being defrauded. Some high street banks do not allow crypto transactions to be made through their credit cards or allow deposits or withdrawals to crypto exchanges. Banks are genuinely trying to look out for their customers in this area and they also fear that if a retail customer of theirs makes a transfer from their account to a crypto-fraudster then the customer may make a claim against them.”


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