Cryptofraud – hackers, false promises and fairytale returns

Investors are turning to the FMA on an increasingly frequent basis, who have invested their money in crypto assets and fear that they have been the victims of fraud. In the monitoring of the markets certain particularly frequently used models for fraud have been identified, which are described briefly below.

Ponzi Schemes

In this form of fraud, customer deposits are collected in the form of Bitcoin, Ripple, Ethereum etc. with the promise of unrealistically high returns and a low risk. Profits are frequently also actually paid out at the start, however such profits are not actually made by the selling of a specific asset. Instead profits are paid out to existing customers from the funds received from new customers. However, as soon as larger proportion of the investors demands profits to be paid out at once, or where the stream of new customers dries up, then the system breaks down.

Fabian F. discovers a platform on the Internet, on which he is made the following offer: He should transfer 10 Bitcoin to the entity for investment purposes. For doing so, he is promised a monthly return of 35 percent as well as an additional daily return of 0.2 percent. After a while these profits are no longer able to be paid out, contact to the entity is broken off, and Fabian F. has lost his investment.

Exit Fraud & Pretend Hacker

“Exit Fraud” is a scam tactic, in which an entity first of collects funds, usually by means of an Initial Coin Offering (ICO) and thereby creates the impression of normal business operations. After a while, all contact is broken off, the responsible parties can no longer be traced and the customer deposits have disappeared.

In the “Pretend Hacker” the customer is informed that the entity has been the victim of a hacker attack and that the customer deposits/crypto assets have been lost. Subsequently all contact is broken off to the entity, and investors often sustain considerable losses.

Phillip R. learns about the imminent ICO of an entity, which is wanting to launch a new kind of virtual currency on the market. The promised profits are so high that Phillip R. invests. A while later, the entity informs Phillip R. about a hacker attack, in which all deposits have apparently been lost. Then the contact is broken off and Phillip R. has lost all of his money.

Using digital technology to create a false pretence about rising prices

Investors are attracted via social networks towards trading platforms for over-the-counter products (CFDs, binary options, crypto assets…). The promise: minimal risk, as well as insurance against losses in capital, which kick in from a certain level of investment.

The platforms are operated using software that the fraudsters themselves have developed, which influences prices and are presented in a positive manner. As soon as investors make an investment, their virtual securities account increases dramatically in value, “returns” are not however paid out. The invested funds frequently disappear in a construction made up of front and dummy companies.

This leads to a total loss of the capital paid in.

Mr. S. is invited to join the Facebook group “Proffitt 7000”, which promises to make him rich quickly. In the group there are adverts for an online platform, which promises high returns for a minimal risk. And best of all: from an investment of Euro 7,000 the investor is even insured against losses in capital. Mr. S. originally only wanted to invest Euro 5,000, but doesn’t want to miss out on the insurance, so he therefore invests Euro 7,000.

Once the first transactions had been made, the value of his virtual securities account increased dramatically. When he then wanted his credit balance paid out, he was placed under pressure over the phone not to do so, but to invest more money instead, which he then also did.

A few weeks later he reads in the media about a case of international cyber trading fraud. One of the platforms named in the media reports is “Proffitt 7000”. Mr S. sustains a total loss. His money has disappeared in a money laundering network made up of front and dummy companies.

Pump and Dump

A group of people buys up large amounts of an unknown crypto asset. Then genuine investors are attracted by the targeted spreading of false information via social media, which causes the price to rise (“pump”). Then the fraudsters sell all their coins and the price crashes (“dump”). The members of the early bird group have realised a profit, while the genuine investors suffer a massive loss.

Rug Pull

A new crypto-project is started, often using its own token and a large online presence (e. g. website, social media, “Telegram” group). The developers promise high profits, innovative technology, or a “new Bitcoin”. Investors get on board early and the token increases in value. As soon as there is enough money in the system, the developers remove all funds – usually by emptying pools of liquidity. The project vanishes: the token is worthless – and your money is gone.

  • Due to the fear of missing out (FOMO): everyone is talking about it – you don’t want to be too late getting on board.
  • Promises of high profits: 100% profit in a short period of time seems enticing.
  • Social confirmation: fake comments, influencers and apparently “real” users held build up trust.
  • Speed: Projects are often online for a few days or weeks – there is not enough time to check them thoroughly.

Ransomware – bribery using malicious software

The perpetrators install malicious software onto your computer – usually by means of a harmless looking e-mail attachment or a manipulated link. Once the software is activated, the computer is blocked or all data encrypted. Then a message pops up: “If you want to be able to access your data again, pay X Euro in Bitcoin.”

  • You open a seemingly harmless message about a package by e-mail.
  • The message seems professional or urges you to react quickly (“Your account will be blocked…”).
  • You don’t notice anything when you click on the message – the blackmail message only pops up hours later.

Many people think that this kind of thing only happens to companies, but private individuals’ photos, documents or tax information are vulnerable to attack. People pay up because they are afraid of losing money and their reputation.

Romance Scam & “Pig Butchering” – Fraud exploiting feelings and trust

Fraudsters contact people via social networks or dating platforms. For weeks on end they write in a charming, loving and supportive manner, and build up emotional trust. Then they mention an excellent opportunity investing in crypto-assets – or ask for assistance when in financial difficulties.

  • Fraudsters pose as being successful businesspeople, soldiers stationed overseas or as having emigrated.
  • Communications seem real: daily messages, plans to spend the future together, video telephony frequently using deepfakes, i.e. deceptively realistic faked videos, pictures or voices created with the help of artificial intelligence with the objective of deceiving people or defrauding them.
  • Sometime a request for money is skilfully weaved in – e.g. to make a “test investment” in an apparently serious crypto app.

Trust is built up slowly over the course of weeks – and victims are often lonely and deeply emotionally involved. They are in no doubt, even if family members or friends warn them.

Crypto bribery by telephone (Microsoft & Police Trick)

Fraud victims receive a phone call, and the scammers claim to for Microsoft, the police or the victim’s bank. They warn about current fraud attempts and the need to take urgent action to protect their account. Perpetrators lure victims to visit a website or directly go to a crypto-auto teller.

  • The call is deceptively realistic: the name shown on the display seems trustworthy.
  • The person on the other end of the phone line sounds both competent and concerned.
  • The instructions seem logical: “Protect your money by converting it into crypto assets.”

Because people become stressed and afraid. The perpetrators deliberately place victims under pressure, and leave them no time to think rationally.

Further information:

Current warnings about fraud on the Internet in general can be found on Watchlist Internet (in German only).