FTX collapse comes amid a rise in crypto-related scams
It’s called “pig slaughter”, but it has nothing to do with a slaughterhouse.
The term refers to a certain scam that fraudsters use to defraud cryptocurrency investors, according to a Nov. 10 Consumer Financial Protection Bureau complaint bulletin that analyzes an increase in crypto asset complaints.
“Our analysis of consumer complaints suggests that bad actors are exploiting cryptoassets 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.”
Chopra said people should be wary of anyone seeking upfront payment in cryptoassets, as this could be a scam.
The agency said many consumers had difficulty accessing funds in their account due to direct platform errors, identity verification issues, security blocks or due to technical issues with platforms.
FTX Collapse Slams Sector
The complaint bulletin comes at a time when crypto investors are still reeling from the demise of the FTX cryptocurrency exchange. FTX’s former CEO Sam Bankman-Fried, 30, resigned on November 11.
He was replaced as CEO by John J. Ray, famous for being the liquidator of the disgraced brokerage firm Enron.
“While the scale of the financial losses is striking, perhaps even greater is the hit to crypto’s reputation as a recognized asset class,” said Dan Ashmore, crypto analyst at CoinJournal.
“These events could not be a better reminder of the dangers inherent in the cryptocurrency space,” Ashmore added. “There are no bailouts in the crypto space. These are not banks, covered by insurance, reserve requirements or other strict rules.”
Isn’t that romantic…?
Poor customer service is a common theme across crypto-related complaints.
“Pig slaughter” is a scheme in which fraudsters spend time with victims to gain their confidence and “romantic affection,” according to the CFPB, in order to get victims to open accounts for crypto assets. The fraudsters then steal all the assets.
In addition, the agency said, with a lack of customer service options for many cryptoasset platforms, there are opportunities for attackers to impersonate customer service representatives to gain access to customers’ accounts and steal cryptoassets.
Consumers who have been defrauded or had their accounts hacked often have nowhere to turn, the CFPB said, and crypto-asset platforms and service providers tend to require mandatory arbitration and limit class-action lawsuits to use their service.
Important terms for using a service can be buried under “Terms and Conditions” and hard to find on a platform, officials warned.
The agency said some crypto-asset platforms only appear to take steps to confirm the authority of a person to act on behalf of a customer after receiving a complaint, and often only after multiple escalations from that customer.
Some complaint patterns, the agency said, such as a fraudster making hundreds of small transactions to the same wallet, suggest fraudsters may be aware of and intentionally evade checks to prevent money laundering and fraud.
No Rescue Operations in Crypto Space
The agency said 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 these transactions and the crypto address with a consumer’s identity or other transactions,” the CFPB said.
Fraudsters may also resort to trading scams, promising goods or services in exchange for crypto-assets, only for the victim to find out the business was fake.
Unlike traditional banks, there is no government agency or financial regulator that insures crypto-assets, the agency said. Consumers should also be aware of websites and apps that may fraudulently suggest government approval or insurance protection of crypto-assets.