FTX Collapse Comes Amid a Surge in Crypto Related Scams
It’s called “pig butchering” but it has nothing to do with a slaughterhouse.
The term refers to a certain scam that fraudsters use to cheat cryptocurrency investors, according to a November 10 complaint bulletin from the Consumer Financial Protection Bureau that analyzes a rise in crypto-asset complaints.
“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” CFPB Director Rohit Chopra said in a statement. “Americans are also reporting transaction problems, frozen accounts, and lost savings when it comes to crypto-assets.”
Chopra said people should be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam.
The agency said that many consumers had issues with accessing funds in their account due to outright platform failures, identity verification issues, security holds, or because of technical issues with platforms.
FTX Collapse Slams Sector
The complaint bulletin comes at a time when crypto investors are still reeling from the downfall of the FTX cryptocurrency exchange. FTX’s former CEO Sam Bankman-Fried, 30, resigned on Nov. 11.
He was replaced as CEO by John J. Ray, known for being the liquidator of disgraced brokerage Enron.
“While the scale of the financial losses is jaw-dropping, perhaps even bigger is the hit to crypto’s reputation as a reputable asset class,” said Dan Ashmore, crypto analyst at CoinJournal.
“These events could not be a better reminder of the dangers inherent in the cryptocurrency space,” Ashmore added. “There are no bailouts in the crypto space. These are not banks, covered by insurance, reserve requirements or other strict regulations.”
Isn’t It Romantic…?
Poor customer service is a common theme across crypto-related complaints.
“Pig butchering” is a scheme where fraudsters spend time with victims to gain their confidence and “romantic affection,” according to the CFPB, in order to get victims to set up crypto-asset accounts. The scammers then steal all the assets.
In addition, the bureau said, with a lack of customer service options for many crypto-asset platforms, there are opportunities for attackers to pretend to be customer service representatives to gain access to customers’ accounts and steal crypto-assets.
Consumers who have been defrauded or have had their accounts hacked often have nowhere to turn, the CFPB said, and crypto-asset platforms and service providers tend to require mandatory arbitration and limit class action suits in order to use their service.
Important terms for using a service can be buried under “Terms and Conditions” and difficult to find on a platform, officials warned.
The bureau said that some crypto-asset platforms appear only to be taking steps to verify the authority of a person to act on behalf of a customer after receiving a complaint, and often only after several escalations by that customer.
Some complaint patterns, the bureau said, such as a scammer making hundreds of small transactions to the same wallet, suggest scammers may be aware of and are purposefully evading controls to prevent money laundering and fraud.
No Bailouts in Crypto Space
The bureau said that some blockchain technology users are unaware of the public nature of the ledger that records every transaction of a crypto-asset.
“Malicious actors may be able to link those transactions and the crypto address with a consumer’s identity or their other transactions,” the CFPB said.
Fraudsters can also resort to merchant scams, which promise goods or services in exchange for crypto-assets, only for the victim to find out the business was fake.
Unlike traditional banks, there is no government agency or financial regulator that insures crypto-assets, the bureau said. Consumers should also be aware of websites and apps that may fraudulently suggest government endorsement or insurance protection of crypto-assets.
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