May 21, 2024

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Crypto fraud jumps by a third in UK

Crypto fraud jumps by a third in UK

UK crypto fraud rose by a third in one year, police data show, with criminals stealing hundreds of millions of pounds from consumers.

The rise in reported losses, obtained via a freedom of information request to UK police unit Action Fraud, comes as the sector faces continued fallout from the collapse of major exchange FTX.

Financial losses involving crypto reported to Action Fraud from October 2021 to September 2022 were £226mn — a 32 per cent increase on the same period a year earlier. The number of reported incidents rose 16 per cent to 10,030.

The figures are part of a wider “epidemic” of fraud, which financial services trade body UK Finance said increased during the pandemic when people’s financial habits moved online. Fraud in general rose 8 per cent year on year to £1.3bn in 2021.

In May, the month in which the so-called “stablecoin” Terra collapsed, affecting a number of other cryptocurrencies and companies connected to it, there was £33mn in reported losses.

According to law firm Pinsent Masons, an increasing number of victims have fallen prey to “rug pull” scams since the value of cryptocurrencies plummeted. Those scams involve crypto developers abandoning a project and running away with investors’ funds.

Last November, the creators of a token which promised access to an online game based on popular Netflix show Squid Game stole an estimated £2.5mn from retail investors before disappearing, the BBC reported.

Hinesh Shah, a forensic accountant at Pinsent Masons, said: “Whenever times are tough, fraudsters always seek to prey on less experienced investors by promising huge returns.

“Given the huge sums which some crypto investors made during the boom, scams involving cryptocurrencies can be especially potent for smaller investors who may be desperate to make a ‘quick buck’.”

Other common scams include fake celebrity endorsements. Scammers impersonating Elon Musk stole millions of dollars from US consumers in cryptocurrency frauds last year, according to the Federal Trade Commission, and UK police have warned that similar schemes are operating in Britain.

People are also falling prey to “pump-and-dump” frauds, in which criminals artificially inflate the price of a cryptocurrency before selling it to retail investors shortly before the value crashes.

The Financial Conduct Authority has repeatedly voiced concerns over consumers investing in high-risk asset classes. In August, the regulator released guidance for firms who advertise these sorts of products as well as banning incentives such as “refer a friend” bonuses.

Several UK banks have moved to limit or stop payments to cryptocurrency exchanges, blaming the high rate of fraud in recent months.

Digital bank Starling last week became the latest to do so, tightening restrictions on inbound as well as outgoing transactions related to cryptocurrencies. It said that despite potential advantages, the speculative assets are at present “high-risk and heavily used for criminal purposes.”

The scandal surrounding FTX’s failure has sent shockwaves through other major players in the space and left the price of cryptocurrencies in free fall. Bitcoin is trading at $16,500, according to data site CoinGecko, down from $54,500 a year ago.