Crypto fraud increases by a third in the UK

UK crypto fraud rose by a third in a year, police data shows, with criminals stealing hundreds of millions of pounds from consumers.

The increase in reported losses, obtained via a freedom of information request to the UK police unit Action Fraud, comes as the sector faces continued fallout from the collapse of the FTX exchange.

Financial losses involving crypto reported to Action Fraud from October 2021 to September 2022 were £226m – a 32 per cent increase on the same period the previous year. The number of reported incidents increased by 16 per cent to 10,030.

The figures are part of a wider “epidemic” of fraud, which financial services trade body UK Finance said increased during the pandemic as people’s financial habits shifted online. Fraud overall increased by 8 per cent year-on-year to £1.3bn in 2021.

In May, the month in which the so-called “stablecoin” Terra collapsed, affecting a number of other cryptocurrencies and companies linked to it, there were £33 million in reported losses.

According to law firm Pinsent Masons, an increasing number of victims have fallen victim to “rug pull” scams since the value of cryptocurrencies fell. These scams involve crypto developers abandoning a project and running away with investors’ funds.

Last November, the creators of a token that promised access to an online game based on popular Netflix shows Octopus game stole an estimated £2.5 million from private investors before disappearing, the BBC reported.

Hinesh Shah, a forensic accountant at Pinsent Masons, said: “When times are tough, fraudsters always seek to prey on less experienced investors by promising huge returns.

“Given the huge sums that some crypto investors made during the boom, scams involving cryptocurrencies can be particularly potent for smaller investors who may be desperate to make a ‘quick buck.’

Other common scams include fake celebrity endorsements. Fraudsters posing as Elon Musk stole millions of dollars from US consumers in cryptocurrency scams last year, according to the Federal Trade Commission, and British police have warned that similar schemes are operating in Britain.

People also fall victim to “pump-and-dump” scams, where criminals artificially inflate the price of a cryptocurrency before selling it to retail investors shortly before its value crashes.

The Financial Conduct Authority has repeatedly expressed concern about consumers investing in high-risk asset classes. In August, the regulator issued guidance for firms advertising these types of products, as well as a ban on incentives such as “refer a friend” bonuses.

Several UK banks have moved to limit or stop payments to cryptocurrency exchanges, blaming the high rate of fraud in recent months.

Digital bank Starling last week became the latest to do so, tightening restrictions on incoming as well as outgoing transactions related to cryptocurrency. It said that despite potential benefits, the speculative assets are currently “high risk and widely used for criminal purposes.”

The scandal surrounding FTX’s failure has sent shockwaves through other major players in the space and left cryptocurrency prices in freefall. Bitcoin is trading at $16,500, according to data website CoinGecko, down from $54,500 a year ago.

Leave a Reply

Your email address will not be published. Required fields are marked *