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Regulators Sharpen Blades Amid Crypto Chaos

As the fate of the cryptocurrency ecosystem appears in flux, regulators and other government officials have been forced to remain extra vigilant as the sector’s most nefarious elements continue to take center stage.

In recent weeks, once-lauded exchange FTX declared bankruptcy, shaking the faith of investors and causing havoc in financial markets around the world. Across the board, cryptocurrency values remain beaten down compared to all-time highs and uncertainty about other exchanges, like BlockFi, abounds.

Amid the chaos, the Consumer Financial Protection Bureau (CFPB) released a new report highlighting some of the complaints it has received with respect to digital currencies. Consumer issues highlighted in the report range in composition from fraud to account hacks, theft and other types of scams. The CFPB has collected more than 8,300 crypto-related complaints from October 2018 to September 2022, with most coming in the last two years, according to the regulatory body.

“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” said CFPB Director Rohit Chopra. “Americans are also reporting transaction problems, frozen accounts, and lost savings when it comes to crypto-assets. People should be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam. We will continue our work to keep the payments system safe from fraudsters targeting Americans.” 

Scammers gravitate to cryptocurrency due to challenges facing law enforcement in determining the true ownership of fraudulent crypto-asset addresses, adds the CFPB. Scammers, too, will use a number of tactics to “obscure” crypto movement and thwart tracing efforts by law enforcement and regulators.

According to a recent Chainalysis survey of illicit transactions, cryptocurrency-related crime reached new heights last year with $14 billion in funds improperly being moved to illicit addresses. That figure, notes the report, is up from $7.8 billion in improperly moved funds in 2020.

In context, though, those figures may offer a silver lining, according to the analysis. Considering cryptocurrency’s rapid adoption for legal, sanctioned activities, illicit activities have grown at a much slower pace than legitimate ones.

“Cryptocurrency usage is growing faster than ever before. Across all cryptocurrencies tracked by Chainalysis, total transaction volume grew to $15.8 trillion in 2021, up 567% from 2020’s totals,” according to the software company. “In fact, with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower.” 

From Twitter

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The CFPB bulletin offers several warnings for consumers and investors who are engaged with cryptocurrency. It asks users to consider things like:

  • Romance and “pig butchering” scams: These involve praying on an individual’s “confidence, trust, and romantic affection.” Scammers will convince their victims to set up and provide access to a crypto-asset account only to eventually clean it out.
  • Customer service scam: With limited customer service options on many platforms, scammers will pretend to be representatives in order to gain access to accounts and steal digital assets.
  • Restitution roadblocks: Crypto-asset platforms often require “mandatory arbitration” as a term of service. This limits class action suits, something many customers do not realize when setting up accounts.
  • Identification risks: Bad actors have reportedly been able to take advantage of publicly recorded transaction data to link crypto assets with consumers’ actual identities.
  • Merchant scams: Some scammers will promise services or goods in exchange for cryptocurrency only to fraudulently collect the funds.

For consumers who have a complaint, contact the CFPB online or call 855-411-2372. To see the Complaint Bulletin, visit here.

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