In the past year, the Investor Protection Clinic (“IPC”) has experienced a significant increase in complaints related to cryptocurrency fraud. This trend has been driven by the heightened popularity of cryptocurrency in markets around the world, the lack of investor education surrounding these products, and the digital nature of these assets. These factors have provided fraudsters with a fertile environment to execute fraudulent online schemes, perpetrated through social media and web-based platforms.

Generally, the conduct of these fraudsters falls outside the scope of regulation. Additionally, it is difficult, if not impossible, to track and recover funds given the anonymity of the online fraudster.

In response to the growing concern surrounding crypto-related fraud, regulators recently issued guidance stating that investors should take a cautious approach when making crypto-related investments through online platforms in order to avoid investing in fraudulent schemes.^(CSA) Aligning with this guidance, the IPC has detailed below a series of considerations that prospective crypto investors should contemplate before pursuing crypto-related investments.^(CSA)

What is Cryptocurrency:

A common reason individuals fall victim to fraud is due to a lack of understanding as to what cryptocurrency is and how it operates. Simply put, cryptocurrency is a digital currency designed to work as a medium of exchange through a computer network that does not require a central intermediary such as a government or central bank to uphold or maintain it.^{(Investopedia)} Common examples of cryptocurrency include, but are not limited to: Bitcoin (“BTC”), Litecoin (“LTC”) and Ethereum (“ETH”).^(CFI) Recently, some businesses have started to accept some of these cryptocurrencies in the place of legal tender; however, universal adoption of such currency remains a long ways away.^(Biz)

What to do BEFORE Participating in a Crypto-Related Investment:

Step #1:

Consider the Source of the Crypto Investment Opportunity

Crypto fraudsters have been known to contact their victims through a variety of channels. Before investing, you should always take note of how you first learned about the investment opportunity, as this can be a key way to identify potential fraud. Below are some of the common ways fraudsters contact their victims:

• Social Media Advertisements – An increasingly common method that fraudsters are employing is creating social media accounts and pages advertising their fake crypto platforms and requesting the personal contact information of individuals who are interested in investing.^(CSA)

• Repeated Telephone Calls – Many victims are continuously contacted by fraudsters claiming that they have a “great opportunity to invest.” The frequency of these calls in some cases can be up to 10+ times per week.

• Random Text Messages/Emails– Fraudsters have been known to contact victims via texts or emails claiming to be a long-lost relative or friend who has an investment opportunity or needs funds to support a crypto-related venture.

• Website Pop-ups – In some cases, fraudsters have leveraged pop-up advertising on the internet to drive traffic to their sham crypto website, which they use to collect funds.

Step #2:

Investigate the Company Claiming to Provide the Service

Another way to avoid falling victim to fraudulent crypto-schemes is to research the company offering the investment opportunity. We recommend:

1. Check the OSC Website (Registered Crypto) to see if the firm is a registered crypto asset dealer or marketplace. If the company is not registered in Canada, but claims to be registered in another country, make sure to verify this on the designated regulator’s website, as fraudsters often falsely assert that they are registered in other jurisdictions.^(OSC)
2. Check the OSC Website (Investor Warnings and  Alerts) to see if the company you are looking to invest with has been identified as a fraud scheme by regulators. If the company you are looking to invest with has been identified on this website, we strongly recommend you refrain from engaging with the company.^(OSC)
3. Look at the company’s reviews and ratings. Make sure to take note of both reviews detailing claims of fraud submitted by past customers and the recency of the reviews. Generally, crypto-scams tend to be short-lived and therefore be cautious of companies and platforms without reviews posted in the last 6 months.

Common Signs of Fraud WHILE Investing:

The online nature and popularity of crypto-investments can sometimes make it difficult to identify fraud at first glance. Consequently, if you have invested in crypto-related products, it is important to stay vigilant for signs indicative of fraud. Some of these signs may include:

1. Celebrity-inspired Names – Fraudsters have a tendency to use fake names when dealing with their victims in order to avoid being traceable. These names tend to be the same or similar to celebrity names (e.g., Dwayne Johnson). Although certainly not determinative, if the person you are investing with claims to have a celebrity-inspired name, stay alert for other signs that may indicate fraud.
2. One-Way Calling Access – Fraudsters tend to call from phone numbers that are only capable of placing calls and cannot receive them. As such, if you are unable to get in touch with the individual you are investing with or when you place a call to them it indicates that the number is “not in service”, these are signs that the individual may be a fraudster.
3. Intermediary Facilitated Transfer – Fraudsters are known to encourage victims to first use a regulated crypto platform as an intermediary before transferring funds to their platform or investment. They do so in order to reduce the traceability of the funds and as such, it is recommended that investors be extremely cautious when transferring funds from a regulated crypto platform to an unregulated one.
4. Remote-in – Commonly, fraudsters encourage victims to install remote-in software on their devices in order to help victims “set-up their account.” However, in many cases, fraudsters use this as an opportunity to gain access to their victims’ accounts and other personal information on the device. It is recommended that investors be very cautious when asked to allow others to access their devices through “remote-in” software.
5. Odd Transfer Amounts – Fraudsters tend to request odd transfer amounts (e.g., $9,999.99), in order to circumvent regulatory reporting requirements designed to identify fraud.^(Fintrac) Accordingly, be sure to note the amount you are being requested to provide for crypto-investments.
6. Proof of Early Profitability – In many instances, fraudsters provide victims indications of early success on the sham investments (e.g., early returns, immediate investment growth, etc.) in order to encourage victims to invest more funds. Generally, investors should be careful not to be pressured into making subsequent investments based on early returns.^(CSA)
7. Difficult Liquidation – Upon victims requesting the withdrawal of funds, often fraudsters tend to describe a complicated liquidation procedure. This liquidation procedure may require victims to “sell their positions” or wait a specified period in order to transfer their funds out of the investment. Usually, these “procedures” result in the victims losing the majority of their investment and very rarely are victims able to recover any of these funds.
8. Relationship Deterioration Upon Request for Withdrawal – Upon victims requesting the withdrawal of funds, fraudsters are also known to become suddenly unreachable or to continuously request to push the date of withdrawal.
9. Website Removal – Finally, when fraud schemes are identified or the fraudsters have completed their schemes, associated websites are typically quickly removed and this can make it very difficult for victims to gather evidence to pursue a claim.

What to do if you are a Victim of a Crypto Scam?

Unfortunately, there is little that can be done if you have fallen victim to cryptocurrency scams, therefore it is extremely important that you do your best to identify fraud schemes upfront or early-on to mitigate financial loss.

That being said, victims should contact their local police to report incidences of crypto fraud and take further steps to report it to other organizations such as the Canadian Anti-Fraud Centre.^(CCCS) It is also recommended that victims contact the OSC, since the regulator could launch an enforcement action against the crypto scam and issue an investor alert to warn others in the investing community.