Jan 28, 2025

Don’t Get Scammed! A Guide to Crypto Fraud Awareness and Prevention

Cryptocurrency continues to evolve, with ongoing developments in blockchain technology, decentralized finance (DeFi) and non-fungible tokens (NFTs). While mainstream adoption is still ongoing, it has become more integrated into the financial landscape, with institutional investors, large financial institutions, and even national governments showing interest. Cryptocurrency for retail investors has surged in popularity, fueled by the allure of the potential for significant gains and the “fear of missing out” (FOMO). But, without the same regulatory framework as traditional markets, investors should be aware that cryptocurrency may be more susceptible to price swings, hacking, and scams.1

What is crypto fraud?

Crypto fraud encompasses a wide range of deceitful activities aimed at exploiting investors in the cryptocurrency market. To prevent and defend against these fraudulent attempts, it helps to know how crypto fraudsters target their victims. Here are some common types of crypto fraud: 2

  • Fake ICOs (initial coin offerings): Scammers create fraudulent ICOs for non-existent or poorly-developed projects, enticing investors with promises of high returns.
  • Phishing attacks: Scammers attempt to steal your login credentials and cryptocurrency through fraudulent emails, websites, or messages.  
  • Ponzi schemes: These fraudulent schemes promise high returns to early investors by paying them with funds from subsequent investors.
  • Pump and dump schemes: Coordinated efforts to artificially inflate the price of a cryptocurrency, followed by a rapid sell-off by the perpetrators.  
  • Crypto recovery schemes: This type of fraud targets recent victims of cryptocurrency scams. Scammers claim to be capable of recovering lost funds in exchange for upfront fees and financial information.
  • Rug pulls: Developers of a cryptocurrency suddenly abandon the project, leaving investors with worthless tokens.
  • Social media scams: Scammers impersonate legitimate crypto influencers or celebrities on social media to promote fraudulent investment opportunities. Always beware of unsolicited investment advice, especially on social media.

How to avoid crypto fraud

If you’re considering crypto investments, it's critical to proceed with caution. Work closely with your financial advisor as a crucial due diligence point. We can help you understand the risks involved and assess whether crypto aligns with your overall financial goals and risk tolerance.

  • Choose reputable exchanges: Only use well-established and regulated cryptocurrency exchanges. Consider using a hardware wallet for added security of your crypto holdings. Alternatively, explore investing in crypto exchange-traded funds (ETFs) through a traditional brokerage account for increased investor protection and oversight. Read more about spot bitcoin ETFs here: https://corient.com/insights/articles/primer-on-spot-bitcoin-etf
  • Invest responsibly: Start with an amount of money that you can afford to lose.
  • Conduct thorough research: Understand the specific cryptocurrency, its technology, and the team behind it.
  • Be wary of unrealistic promises: If an investment opportunity sounds too good to be true, it probably is.
  • Never send money to strangers: Avoid sending money to anyone claiming to be able to purchase crypto on your behalf.

The recent collapses of cryptocurrency exchanges like FTX highlight the inherent fragility of this market, even for investors who believed they were taking all the right steps to avoid problems. 3   Cryptocurrency markets are relatively new and have limited track records. They  should be viewed as high-risk, high-reward investments. Investors must be prepared for the possibility of losing a significant portion, and in a worst-case scenario, all of their investment.

Crypto fraud recovery action plan

If you believe you may have been a victim of crypto fraud, take immediate action:

  • Notify your financial advisor: We can help you understand the situation, explore potential recovery options, and guide you through the next steps.
  • Gather information: Document all interactions with the scammer, including any communication, transaction records, and websites or platforms involved.
  • Report the incident: File a report with IC3 at www.ic3.gov, the FTC at ReportFraud.ftc.gov and your local law enforcement agency.  
  • Contact your cryptocurrency exchange: If the fraud occurred on an exchange, report it to their customer support team.

Remember, prevention is key. By staying informed, exercising caution and working closely with your financial advisor, you can reduce your risk of falling victim to crypto fraud.4

 

1 Consumer Notice. (2024, March 22). Crypto bankruptcies: companies that filed & tips for investors. Consumer Notice, LLC. https://www.consumernotice.org/legal/crypto-bankruptcies/
2 What to know about cryptocurrency and scams. (2024, March 4). Consumer Advice. https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams
3 Consumer Notice. (2024b, March 22). Crypto bankruptcies: companies that filed & tips for investors. Consumer Notice, LLC. https://www.consumernotice.org/legal/crypto-bankruptcies/
4 What to know about cryptocurrency and scams. (2024, March 4). Consumer Advice. https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams

ABOUT THE AUTHOR

Brendan Hughes, CFP®

Brendan Hughes, CFP®

Associate Wealth Advisor

Brendan is an Associate Wealth Advisor in our Morristown office. He's responsible for analyzing the client’s financial picture, preparing recommendations, and supporting Wealth Advisors in developing strategies that help clients reach their goals. Brendan attended Caldwell University, earning his Bachelor of Science in Computer Information Systems & Business Administration while playing for the men’s soccer team. He holds the CERTIFIED FINANCIAL PLANNER™ certification.

Prior to joining legacy firm RegentAtlantic in 2022, Brendan spent 5 years at Pathstone Family Office working with UHNW clients and institutions. In his free time, he enjoys running after his dogs and spending time with his family. He is also an avid New Jersey Devils and New York Giants fan.



CONTENT DISCLOSURE

This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.

Different types of investments involve degrees of risk, including the loss of principal. The future performance of any investment or wealth management strategy, including those recommended by us, may not be profitable or suitable or prove successful. Past performance is not indicative of future results. One cannot invest directly in an index or benchmark, and those do not reflect the deduction of various fees that would diminish results. Any index or benchmark performance figures are for comparison purposes only, and client account holdings will not directly correspond to any such data.

Advisory services are offered through Corient Private Wealth LLC and its affiliates, each being a registered investment adviser (“RIA”) regulated by the U.S. Securities and Exchange Commission (“SEC”). The advisory services are only offered in jurisdictions where the RIA is appropriately registered. The use of the term “registered” does not imply any particular level of skill or training and does not imply any approval by the SEC. For a complete discussion of the scope of advisory services offered, fees, and other disclosures, please review the RIA’s Disclosure Brochure (Form ADV Part 2A) and Form CRS, available upon request from the RIA and online at https://adviserinfo.sec.gov/. We also encourage you to review the RIA’s Privacy Policy and Code of Ethics, which are available upon request.

Our clients must, in writing, advise us of personal, financial, or investment objective changes and any restrictions desired on our services so that we may re-evaluate any previous recommendations and adjust our advisory services as needed. For current clients, please advise us immediately if you are not receiving monthly account statements from your custodian. We encourage you to compare your custodial statements to any information we provide to you.