On World Elder Abuse Awareness Day, Be Informed! Don't be the Next Victim of a Crypto Investment Scam
June 15, 2024 is World Elder Abuse Awareness Day. Elder Abuse encompasses a range of behaviors including physical abuse, emotional abuse, sexual abuse, neglect, unreasonable confinement or restraint, and financial exploitation. In 2023, Dane County Adult Protective Services (APS) investigated 408 reports of elder abuse, 63% of those cases were substantiated. Of those reports, financial exploitation was the highest category, accounting for 34% of the investigations. The second highest category was self-neglect, at 32%. In 2022 in Dane County alone, victims of financial exploitation lost over $1 million. The Wisconsin Department of Financial Institutions’ Division of Securities (DFI) opened approximately 115 new investigations in 2022 and issued 22 administrative orders against 43 perpetrators of investment fraud, with approximately $20,812,565 in restitution and disgorgement ordered returned to investors. Senior victims can be found in at least one-half of those cases—a demographic often considered least likely to adopt new technologies. Yet, the Wisconsin data confirms older investors are just as vulnerable as the rest of us to cryptocurrency and internet/social media scams, which DFI expects will continue to be the top threats in 2024.
In 2023, DFI continued to monitor and investigate financial scams with a special focus on cryptocurrency investments. For example, in June of 2023, Don of Madison, Wisconsin,1 age 79, received an unsolicited text message from “Orla.” They began chatting, and Don quickly became smitten with Orla, who presented herself as a successful, young businesswoman involved in many ventures, including crypto investments. Soon Orla persuaded Don to invest his entire savings of $342,000 in a fake website called “Trust Wallet.” Don believed that through a series of online, short-term trades in his “Trust Wallet” account, Orla had increased his investment to over $3 million. In August of 2023, Don was told his Trust Wallet account was frozen and he needed to deposit another $421,000 as a “withdrawal deposit” to unlock his account. Don paid $5,000 into the account and then lost all contact with Orla and Trust Wallet. His entire life savings was gone.
Don was the victim of a romance scam, sometimes called a financial grooming scam or pig-butchering scam. In March 2023, the Federal Bureau of Investigation (FBI) released a report that said its Internet Crime Complaint Center (IC3) identified more than 19,000 victims of confidence or romance scams resulting in losses greater than $735 million. In a similar report, the Federal Trade Commission (FTC) showed that romance scammers cost nearly 70,000 consumers $1.3 billion in 2022. Investments tied to cryptocurrencies and digital assets topped the North American Securities Administrators Association’s (NASAA) 2023 list of investor threats. In 2022, state securities regulators reported opening more investigations involving digital assets than any other securities products, such as stocks, real estate and notes.
Wisconsin investors are not immune to the lure of romance scams. Since March of 2023, DFI has received 22 complaints from persons who describe losing over $2.3 million through financial grooming crypto scams. It is important to remember anyone can be the victim of fraud. For example, before he retired, Don was an auditor and financial reporter. DFI’s complainants also include a doctor, engineer, business executive and real estate professional.
These complaints largely follow the same pattern. Typically, the scammer will approach victims through social media or dating apps appearing friendly and innocuous, successful and attractive. Once the victim engages in chatting with them, they ask to take the conversation offline (e.g., WhatsApp, WeChat), and then communicate regularly with the victim to establish the relationship. Building the relationship, or “grooming” can take several weeks or months before the financial fraud occurs. Once the scammer has the victim’s trust, the scammer will then propose an investment opportunity related to crypto assets. The scammer will offer to train the victim to set up an account on an exchange to purchase crypto assets, and then provide a website or wallet address for the victim to transfer funds in order to participate in the investment opportunity. The fraudulent platform investment opportunity is often designed to appear legitimate, and often produces artificial gains to keep the victim engaged in the platform and possibly deposit more funds. However, the victim is never able to withdraw their funds from the site and may be asked to transfer even more funds before anything can be withdrawn through a variety of excuses (e.g., service fees, Internal Revenue Service (IRS) taxes, etc.).
When we are smitten with someone, we tend to lead with our heart instead of our head, which may cause us to ignore red flags. This happened to Victor, a mathematical statistician, of Fitchburg, Wisconsin, who began engaging with a scammer through a series of communications that began with a wrong text from “Evelyn”:
Evelyn: Hi Ellie, I'm Evelyn. how have you been?
Victor: No Ellie here. Hope you find her. 😊
Evelyn: I checked this number and I believe I have the wrong person, I'm sorry 😅
Victor: No problem.
Evelyn: Btw, I have gotten in touch with Ellie. You are really kind, thank you!
Victor: 👌
Evelyn: You sound very friendly. Too many people are rude these days. You are a precious person
Victor: 😁 thanks.
Evelyn: Maybe this is a chance to make new friends? I'm Evelyn, what's your name?
Evelyn persuaded Victor to move their conversation to her private WhatsApp account, where she bragged about her success trading crypto on a platform called SpreadExFx.com. However, Victor identified several red flags concerning SpreadExFx.com. Among other things, the platform’s website claimed to manage $140 billion in digital assets globally, yet it did not have a US presence or disclose where it was registered anywhere in the world. Further, the website had grammatical, punctuation and spelling errors, something one would not expect from a professionally managed platform dealing with billions of dollars of assets. Evelyn responded to his concerns by making exaggerated claims about the money she made through the exchange for years, asserting she had traded $4 million on the platform, and that “the cars I’ve bought, the houses I’ve bought are all real.”
Ultimately, Victor’s heart overruled his concerns and, ignoring all of the red flags he had identified, Victor invested nearly $90,000 based on Evelyn’s trading recommendations. After one month, Victor believed his SpreadExFx.com account held $185,000. However, when Victor tried to withdraw his profits, he was told he would need to deposit an amount equal to 10% of his funds, which he did. Yet, he was never able to withdraw any funds from the SpreadExFx.com account.
Unfortunately, people like Victor and Don who have already lost money to a scam may also be targeted by a refund or recovery scam. In fact, Don paid $5,000 to a recovery firm that promised to recover his funds from Trust Wallet and “Orla.” Eventually, Don received a check in the amount of $95,000 from the “recovery” firm, which turned out to be fraudulent. Thus, Don was scammed twice, and it is highly unlikely he will ever see those funds again. Scammers use cryptocurrencies because the transactions are irreversible.
As Don painfully learned, in refund or recovery scams, someone posing as a third-party asset recovery company says they can help get the victim’s money back, but the victim needs to pay them a large fee first. While the company claims to gather information on the scam and assist the victim in recovering lost investment dollars, at best they may file a boilerplate complaint with a financial regulator – which the investors could have done for free. At worst, as in Don’s case, they may do nothing and disappear with the fee, defrauding the investor for a second time. If you are approached by a third-party asset recovery company about an investment loss, beware that they may be charging for services available to you for free.
To protect yourself and your hard-earned savings, learn to identify the red flags of a romance/financial grooming scam:
- The scammer reaches out first in an unsolicited text or on social media platforms such as Instagram, LinkedIn or dating applications;
- The scammer asks to move the conversation to encrypted messaging services such as WhatsApp, Telegram or Signal;
- The scammer uses terms of endearment early on in the relationship;
- The scammer pressures you to open a bank/crypto account;
- The scammer brags about their successful investments and encourages you to invest; and
- The scammer works remotely and is never available to meet in person.
It is important to recognize those red flags because scammers are hard to resist. In Wisconsin, one scammer threatened to kill herself unless the target invested more money in her scheme. Other scammers simply overwhelm you with promises of easy money. Make it a rule not to respond to random wrong texts. Don’t mix romantic relationships with your investments. No matter how long you’ve been speaking to someone online and how much you trust them, never send them any money, or allow them access to your bank account or digital wallet. Do not transfer money on their behalf, invest your own money on their advice, or take out a loan for them. If you follow these rules, you are less likely to be a victim of a cryptocurrency investment scam.
However, if you are scammed, here are some steps you can take to protect yourself:
- Stop all contact with the scammer;
- Do not delete any of your communications with the scammer. Instead, save those communications in a folder, along with any bank and crypto account records of the transactions;
- Collect any identifying information you have about the scammer, such as names, phone numbers, addresses, email, and social media account URLs;
- Report the scam to the relevant authorities; and
- Reach out to your bank and credit card companies to determine the best safeguards for your accounts.
Reporting crimes makes the community safer, but it is not always easy to figure out where to report what happened. Victims of cryptocurrency investment scams can report the scam to local law enforcement and ask for a case number. Victims should also file a complaint with the FBI’s Internet Crimes Complaint Center (IC3.gov), the Federal Trade Commission (FTC.gov) and the US Secret Service (CryptoFraud@SecretService.gov). Finally, you can file your complaint with the Wisconsin Department of Financial Institutions, Division of Securities (dfi.wi.gov). We may not be able to recover your funds, but we can assist you to gather the relevant information and report it to law enforcement.
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1 The names of Wisconsin investors used in this article are fictious in order to protect the privacy of these victims.
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