4.06 Investment scams. What to look out for?

 

Investment fraud is one of the most common recent threats that is oriented towards people who use the services offered on the financial market. In this lesson, you will learn what to look out for and what to be aware of.

 

Content

• What is investment fraud?
• Example of an investment fraud scenario
• How to recognise investment fraud?
• Internet Crime Report 2022, FBI
• How to avoid getting scammed?

 

What is investment fraud?

Investment fraud is one of the most common recent threats that is oriented towards people using services offered in the financial market. It is faced not only by the banking sector, but also by the cryptocurrency sector.

It consists of manipulating the victim using social engineering and persuading him or her to make an investment (in shares, bonds, cryptocurrencies or rare metals, among others), which in reality turns out to be a scam. In recent years, this method of extortion has become very popular.

In most cases, fraudsters operate in a similar way. They spread fake websites by means of advertisements posted on various social media. They use attractive graphics and promises of very high profits with minimal effort.

They often use the image of famous people and companies to convince people of their offer. Once a user fills in a form on the site where they provide their contact details, the scammers get in touch with them, offering to help them throughout the investment process.

Experienced scammers are skilled at influence and manipulation, putting the user's vigilance to sleep with the added promise of a quick multiplication of investment returns. Unfortunately, victims who are blinded by the vision of instant profit often allow themselves to be persuaded to send money and consequently lose their funds.

Brands most frequently impersonated by scammers

Example of an investment fraud scenario

1. Appearance of false advertising on social media;
2. The victim goes to a fake investment website and provides their contact details;
3. A fake adviser contacts the victim;
4. The adviser informs about the possibility to earn money quickly and safely, uses social engineering to convince the victim;
5. The victim is given access to a fake website that displays false information about their investment;
6. The victim makes an initial deposit (usually the equivalent of US$250);
7. The fake dashboard presents false data showing the victim's alleged profits;
8. The victim is encouraged to deposit further funds, often in the form of cryptocurrencies sent by the exchange;
9. If the deposit is to be made via an exchange, the adviser assists with the process of account creation, verification, deposit and purchase of cryptocurrencies, often using software such as AnyDesk or TeamViewer;
10. After another deposit has been made, the fraudsters continue to try to manipulate the victim;
11. When the victim wants to withdraw the supposedly earned funds, they are informed that they need to make another deposit to reach the withdrawal threshold or to pay tax;
12. No funds are returned to the victim, who realises that he or she has been scammed.

Throughout the process, the person posing as an adviser or mentor makes frequent contact with the potential victim, using social engineering to gain their trust. If there are any problems setting up an account on an investment platform or depositing money, the fraudster offers his or her assistance, usually using so-called remote desktops such as AnyDesk or TeamViewer. 

It is very dangerous to hand over access to one's device to the fraudsters, as not only can this be used by them to improve the effectiveness of their techniques (by figuring out how much savings the victim has and what his or her investment opportunities are), but also to order a withdrawal from a bank or stock market account themselves. As a result, the victim will be left without funds.

The modus operandi of fraudsters can vary; the modus operandi of perpetrators very often changes depending on the specific case.

 

Ways of attracting potential victims

• online advertising, e.g. on Facebook;
• groups on social media or instant messaging, e.g. on
• Telegram, Facebook;
• investments "advertised" by popular individuals;
• impersonation of well-known individuals in the cryptocurrency industry;
• impersonation of employees of cryptocurrency exchanges;
• Dating apps, e.g. Tinder;
• attempting to make contact by replying to comments are posted by potential victims under cryptocurrency-related videos.

 

How to recognise investment fraud?

• Guarantee of high returns with minimal risk. Remember that investments always involve some risk and high returns usually require a lot of time and effort.
• Lack of specific information, avoiding giving contact details. After talking to an 'adviser', things are still not clear. If an investment company or broker is unwilling or unable to provide clear information about a particular investment, then caution should be exercised.
• Forcing quick decisions. Fraudsters want potential investors to make decisions in a hurry, without a thorough analysis of the situation. They warn of 'missed opportunities' or inform people that it is a 'last chance', which forces people to make decisions under pressure.
• Lack of proper licensing or registration with a regulatory body. It is worth making sure that the company or investment is registered and regulated by the relevant financial regulators. The investment platform we choose should be vetted by ourselves and also by other users. It is also important to have a licence to provide cryptocurrency services (such as zondacrypto has). The company should be regulated by external bodies such as the FIU. Also check that the licences presented by investment companies are genuine.

 

Internet Crime Report 2022, FBI

According to the FBI in its 'Internet Crime Report', in 2022, the most common type of fraud reported to IC3 (the Internet Crime Complaint Centre) was investment fraud, both in terms of the number of cases and the value of losses. Complaints related to these increased significantly by 127% compared to 2021. A significant proportion of these complaints were cryptocurrency-related investment fraud, which increased by 183%, from $907 million in 2021 to $2.57 billion in 2022.

According to the FBI report, cryptocurrency investment fraud particularly affected those aged 30-49. Examples of the varieties of such scams reported in 2022 are:

• Liquidity mining: victims are persuaded to link their cryptocurrency wallet to a fraudulent liquidity mining app. Fraudsters then 'cleanse' the victims' balances without their consent.
• Hacked social media accounts: fraudsters used hijacked social media accounts to persuade friends of such a user to make fraudulent investments using cryptocurrencies.
• Celebrity impersonation: the victim receives investment opportunities from a fraudster impersonating a well-known person.
• Employment: victims apply for a job with a purported investment or investment-related company. Instead of employment, victims are offered 'investment advice'.

Although fraud remains the largest form of cryptocurrency-based crime, revenue from this area has dropped significantly from US$10.9 billion in the previous year to US$5.9 billion in 2022.

Despite the fact that revenues from this category declined in 2022, several very 'successful' scams were observed. The largest of these was Hyperverse, which generated almost US$1.3 billion in revenue. The top 10 cryptocurrency scams in 2022 were all investment scams:

 

In 2022, investment fraud was the main source of revenue for cybercriminals using cryptocurrencies.

 

How to avoid getting scammed?

To guard against cryptocurrency investment scams, be vigilant and watch out for any potential signs that something is amiss.

• Don't be fooled by promises of getting rich quick. Remember that all investments involve some risk. If an offer looks too good to be true, it most likely is.
• Use reliable cryptocurrency platforms and exchanges. Before you invest your funds anywhere, check the platform/exchange in question thoroughly and only choose platforms/exchanges that provide a secure investment environment. Find out if they are properly licensed and regulated, how long they have been in the market and what kind of feedback they have among other investors.
• Avoid offers that push you to make quick investment decisions. It is very common for fraudsters to insist that an investment is made as soon as possible in order to avoid giving you time to carefully analyse the offer and withdraw.
• Try to improve your knowledge of investment scams and how to prevent them. Fraudsters are constantly using new methods and techniques, their modus operandi can vary from case to case. State authorities, as well as financial institutions and cryptocurrency exchanges like zondacrypto, regularly publish different types of warnings related to trends in investment fraud. Try to follow these announcements in order to stay up to date and not be caught by surprise.

It is important to remember that the problem of investment fraud affects the entire financial sector, not just the cryptocurrency industry. In order to effectively counter this phenomenon, it is essential to have a wide-ranging collaboration between different actors - from both the public and private sectors. This collaboration will allow for maximum synergy and efficiency in countering investment fraud.

At zondacrypto, we believe that user education is an essential element in countering investment fraud. This is why we prepare lessons such as this one at the zondacrypto Academy. 

Remember to take extra care before making any investment decisions.