FBI Warns of Explosion in Crypto Fraud

Ever since cryptocurrency was introduced to the masses, its supporters have fought against the perception that it is nothing more than a mode of exchange for shady pursuits. A new report from federal law enforcement authorities won’t help their case.

According to the latest data from the FBI, Americans were scammed out of an estimated $5.6 billion in 2023 as a result of crypto fraud. The report said the total amount represented a 45% increase from the prior year.

The FBI Internet Crime Complaint Center – known as IC3 – fielded more than 69,000 financial fraud complaints last year involving Bitcoin and other forms of crypto, per the report. Although that total only accounted for around 10% of all complaints, the FBI indicated the total dollar amount tied to crypto schemes added up to around 50% of all financial fraud losses. More than 70% of crypto losses came from investment ruses.

“The decentralized nature of cryptocurrency, the speed of irreversible transactions, and the ability to transfer value around the world make cryptocurrency an attractive vehicle for criminals, while creating challenges to recover stolen funds,” IC3 said in the report. The “irreversible” part of such transactions makes crypto especially conducive to fraud: Banks can typically undo errors on victims’ accounts; once crypto tokens land in the hands of fraudsters, they’re gone. As would be expected, elderly people wind up as the most common targets of crypto schemes, accounting for roughly 30% of the total amount lost to fraud.

Some of the people who are responsible for oversight of the financial system apparently want to see crypto stakeholders take more ownership over scam prevention. For example, Senate Judiciary Committee Chair Dick Durbin (D-IL) is leading a group of Democratic lawmakers calling on major Bitcoin ATM operators to address fraud perpetrated on elderly people using their machines. The senators have noted that data from the Federal Trade Commission show the amount lost by consumers from schemes involving Bitcoin ATMs skyrocketed from $12 million in 2020 to $114 million in 2023. They also pointed out that elderly people are more than three times as likely to report losses involving Bitcoin ATMs as younger adults.

Meanwhile, the Securities and Exchange Commission recently notched a big win in court over a crypto wallet. The agency sought legal action in 2021 against Rivetz stemming from charges the now-defunct company sold unregistered securities in 2017 when it held an initial coin offering to raise $18 million. A U.S. District Court judge ruled in favor of the SEC this week.

But perhaps more clarity on the rules for regulation would reduce some of the confusion fueling so much crypto-related hanky-panky. The largest U.S. crypto exchange, Coinbase, seems to think so. The company filed a petition for rulemaking in 2022 requesting that the SEC clarify the conditions under which digital tokens qualify as securities. The commission balked, countering it believes current regulations can be applied to the crypto sector. Coinbase is now suing in federal appeals court to overturn the SEC’s decision.

At this point, both industry and government probably bear responsibility for doing more to deter fraud – and doing it more quickly. The entry of former president and current Republican presidential nominee Donald J. Trump into the business of digital assets will undoubtedly draw even more attention to crypto investment. A new crop of potential investors – with various levels of sophistication – sounds like a target-rich environment for scam artists.