Protecting your organization (and yourself) from cryptocurrency scams

by Darin Styles, CPA, CFE

Cryptocurrency, sometimes called crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Crypto isn’t backed by any government or central bank, but you can still use it to buy goods and services, exchange it for U.S. dollars and other conventional currencies on digital markets, and even obtain it at specialized ATMs.

Investments tied to crypto and digital assets are by far the biggest threats facing individual investors in 2022, according to an annual survey of securities regulators by the North American Securities Administrators Association (NASAA), Globally, crypto criminals made a record $14-billion haul in 2021, up nearly 80% from about $8 billion in the previous year, according to blockchain data platform Chainalysis. Of that total, over half of those transactions were attributed to scams, while theft, ransomware attacks and money laundering made up the rest. Given the exponential rise in reported crypto scams, awareness of the common types of scams and what kinds of things you can do to protect yourself from being cheated are more important than ever.

Generally speaking, crypto scams fall into two categories

The first type involves initiatives aiming to obtain access to a target’s digital wallet or authentication credentials, also known as a “phishing” scam. This means scammers try to get information that gives them access to a digital wallet, or other types of private information such as security codes. In some cases, this even includes access to physical hardware.

The second type is accomplished when a scammer uses malicious means, such as impersonation or fraudulent business opportunities to convince a target to transfer crypto directly to them. If you are guaranteed to make money, big payouts, or free money, it’s a warning sign.

Preventive measures for avoiding crypto scams

The adage “if something sounds too good to be true, then it probably is” is one to keep top of mind for any kind of investing, but it is especially true for crypto. Here are some ways you can avoid becoming a victim of crypto fraud:

• Don’t put money in crypto if you don’t fully understand how it works, and don’t invest with money that you can’t afford to lose.
• Avoid investing or trading crypto based on advice from someone you’ve only dealt with online. Legally, anyone offering a crypto investment is obligated to truthfully disclose all material facts and the risks associated. On the other hand, bad actors will often minimize or conceal risks, and use hyperbole to tout profits and payouts. Pay attention to these details, as they can provide clues about the potential illegitimacy of a scam.
• Don’t believe social media posts promoting cryptocurrency giveaways. The NASAA recommends researching the registration of the investment firm making the offer. Don’t use hyperlinks provided by them – instead, contact their state securities regulator, or conduct research via the SEC’s Investment Adviser Public Disclosure website or the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck platform.
• Don’t share your “private keys” (which enable you to access your virtual currency) with anyone; keep them in a secure place, preferably offline where they cannot be hacked.

Information about each of the 2022 investor threats and contact information for all state and provincial securities regulators can be found on NASAA’s Fraud Center.

For additional guidance on crypto fraud, Abdo is here to help keep you informed and protected. Contact Abdo’s fraud prevention specialist, Darin Styles, to talk about your needs and concerns.