A complaint bulletin that highlights consumer complaints and discusses fraud risks related to crypto-assets was issued Thursday by the Consumer Financial Protection Bureau (CFPB).
“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” CFPB Director Rohit Chopra said in a statement. “Americans are also reporting transaction problems, frozen accounts, and lost savings when it comes to crypto-assets. People should be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam. We will continue our work to keep the payments system safe from fraudsters targeting Americans.”
The bureau, in a release, noted that scammers often target crypto-assets since it can be difficult to determine the person or people behind many crypto-asset addresses, and scammers use a number of techniques to obscure the movement of crypto-assets to other accounts. This can slow regulators’ and law enforcement’s progress in tracing crypto-assets stolen by fraudsters, it said.
The bureau also noted that as price volatility and adoption of crypto-assets has increased in recent years, there has been a similar rise in related complaints received by the CFPB:
- From October 2018 to September 2022, the CFPB received more than 8,300 complaints related to crypto-assets, with the majority of them received in the past two years.
- For about 40% of crypto-asset complaints handled since October 2018, consumers listed frauds and scams as the main issue.
- Various transactional issues with crypto-assets accounted for about 25% of complaints, while issues with assets not being available when promised made up about 16% of complaints, the bureau said.
The bulletin identified several common risk themes in analyzing crypto-asset complaints, including hacks by malicious actors that have marred crypto-assets and led to financial loss by consumers.
The bureau also noted additional risks:
- Romance scams and “pig butchering”: Crypto-assets are often targeted in romance scams, where scammers play on a victim’s emotions to extract money. Some scammers employ a “pig butchering” technique, where fraudsters spend time gaining the victim’s confidence, trust, and romantic affection in order to get victims to set up crypto-asset accounts, only for the scammers to ultimately steal all their crypto-assets. In addition, with a lack of customer service options for many crypto-asset platforms, there are opportunities for attackers to pretend to be customer service representatives to gain access to customers’ accounts and steal crypto-assets.
- Difficulty obtaining restitution: In situations where consumers have been defrauded, or had their account hacked, they are often told there is nowhere to turn for help. In addition, crypto-asset platforms and service providers tend to require mandatory arbitration and limit class action suits in order to use their service. Important terms for using a service can be buried in the Terms and Conditions and difficult to find on a platform.
- Fraudulent transactions: Complaints show that some crypto-asset platforms appear only to be taking steps to verify the authority of a person to act on behalf of a customer after receiving a complaint from that customer, and often only after several escalations by that customer. Some complaint patterns, such as a scammer making hundreds of small transactions to the same wallet, suggest scammers may be aware of and purposefully evading controls to prevent money laundering and fraud.
- Risk of identification: Some users of blockchain technology are unaware of the public nature of the ledger that records every transaction of a crypto-asset. Malicious actors may be able to link those transactions and the crypto address with a consumer’s identity or their other transactions.
- Higher asset volatility: Especially in recent months, crypto-assets have had significantly more fluctuation in value than currency backed by governments. Some crypto-assets have gone to zero or had assets frozen by exchanges.
The bureau advises consumers to beware of common scams and to report suspicious Federal Deposit Insurance Corp. (FDIC) insurance claims.
“Firms that misuse the name or logo of the FDIC or otherwise make misrepresentations to consumers about deposit insurance coverage of crypto-assets likely violate the Consumer Financial Protection Act’s prohibition on deception,” it said.