With the current volatility in the financial market, many people are looking to diversify their investment and retirement portfolios by looking at unconventional investment opportunities. Many opportunities include small business and real estate investment, while other types of opportunities involve riskier ventures. A common theme of these risky ventures may involve cryptocurrency; whether it’s day trading, swing trading or mining, it is important to understand the risks involved with cryptocurrency and other crypto-related assets. As such, much of the risk might seem like common sense, and much of it is. To quote the adage, “If something seems too good to be true, it probably is.”
For more on a basic understanding of cryptocurrency risks, try starting with the UN Toolkit on Synthetic Drugs’ primer on Cryptocurrency Investigations. Within this site, there are several key principles explained, and additional resources for more robust training. Additional resources can be found by seeking out your accrediting agency of choice, such as the Basel Institute on Governance, the Association of Certified Fraud Examiners (ACFE), and the Association of Certified Anti-Money Laundering Specialists (ACAMS) to name a few.
While many cryptocurrency-related fraud schemes may seem technologically advanced, it is usually a combination of several much simpler schemes involving normal aspects of human behavior. In one such example known as “pig butchering,” scammers tend to use various forms of social engineering scams to make contact and gain trust. The deception usually preys on those that are less technologically savvy to avoid detection, such as retirees, but can also be aimed at do-it-yourself investors looking for the next big thing. The goal being to take as much money from the victims by building the relationship and functioning much like a legitimate business, with the result often resembling a Ponzi scheme or boiler room money laundering scenario.
To offer more detail, the following may occur. A person is interested in the mining of cryptocurrency. Realizing the expense and technical knowledge needed to farm cryptocurrency, the person then looks for alternative options. Somehow, whether through online discussion, message boards, or social media, the person divulges their interests and publicly seeks more information. The scammer, seeing this activity, reaches out through private message. Once the initial contact is made and a victim is hooked, a relationship is developed with the inherent goal of building trust and confidence. The goal is to get the person to invest in crypto mining, without ever having any control or physical contact with the operation. The seeds of the social engineering fraud have now been planted.
Next, the person can be directed to a cloned website of a real, legitimate business; however, contact information and other details are changed or masked to point to the bad actors. This form of social engineering, known as “clone phishing,” is used to build credibility with the victim. Additionally, official-looking email communications can be redirected to the scammers, resulting in a variation of “spear phishing” using a fake-forward technique.
For more on spoofing and phishing variations, along with their practical applications, the FBI provides a decent resource within their Common Frauds and Scams educational site.
The fraudsters then continue to build trust by providing some sort of dividend in the form of cryptocurrency to show that the process is working. After being provided with small, proportionate returns on investment, the victim is then asked if more investment is wanted, or if friends and family might be interested. The pattern repeats itself, resulting in a fatter and fatter payday. This is where the term “pig butchering” comes from: the victims keep fattening the pot with the promise of a larger payday, but in the end, the pot disappears, and the victims are left with little recourse to recoup their losses.
Pig butchering scams are not isolated to cryptocurrency; variants of the scam are also seen throughout the investment, asset management and banking world. For more on “pig butchering,” please reference FinCEN Alerts, FIN-2023-Alert005. If you or someone you know has been involved or victimized by this type of scam, refer to the FBI’s Public Service Announcement I-100322-PSA and file a report with the FBI’s Internet Crime Complaint Center at www.ic3.gov.