Attorney General Kwame Raoul on Wednesday encouraged Illinoisans to learn more before using or investing in cryptocurrency in order to avoid being defrauded by cryptocurrency scams.
Cryptocurrency is a type of digital currency purchased using a computer or smart device. There are many different cryptocurrencies that can be purchased, sold and traded on cryptocurrency “exchanges;” used to buy goods and services; or held as investments. However, cryptocurrency can be risky because it can be lost or stolen, and prices are more unpredictable than traditional assets, Raoul says in a news release.
Unlike traditional money, assets or stocks, cryptocurrency and cryptocurrency exchanges are not meaningfully regulated by any government, centralized bank or organized exchange. Without significant oversight, it is easier for fraud to occur and more difficult to reverse fraudulent transactions. More importantly, there is no guarantee lost or stolen cryptocurrency will be returned.
“Recent high-profile scams involving cryptocurrencies highlight the need for consumers to be hyper-vigilant when dealing with anyone claiming to sell or provide information relating to the volatile world of cryptocurrencies,” Raoul said. “The unregulated cryptocurrency market has provided countless examples of massive investment gains and losses, fueling high-profile publicity and an associated increase in fraudsters looking to take advantage of consumers.”
The Attorney General’s office is aware of reports that people have been contacted by scammers who pose as cryptocurrency investors and promise significant investment returns or offer cryptocurrency investment advice. Those scammers either ask that money be sent to them directly or refer people to a website or app that looks authentic but that the scammer controls. Individuals may receive information indicating they have seen a return on their investment, but these statements and websites are usually fake, the release says.
Instead, the scammers have often already taken the investor’s money and disappeared. In some cases, scammers may claim investors must pay fees, taxes or verify their account in order to receive their earnings. At this point, the scammers have already taken investors’ money and are attempting to extract additional funds.
Raoul issued the following recommendations to help people avoid losing money in cryptocurrency scams:
- Understand the basics of cryptocurrency before you invest. Scammers know cryptocurrency is new and complex and that many people will not ask for details. Do not invest with anyone who cannot explain the investment details in plain language or claims they want to exploit a certain aspect of the cryptocurrency market, or that your investment carries little to no risk.
- Never invest money that you cannot afford to lose. Cryptocurrency has some of the highest volatility – or fluctuating prices – on the market. Investments can plummet based on a single event or in a single day.
- Watch out for cryptocurrency opportunities that encourage you to recruit other investors. Returns coupled with incentives based on the number of people you add to the network or company may be the sign of an illegal pyramid scheme. Although you may initially receive comparatively small profits, all the money really goes to investors at the top. As with pyramid schemes, the investors at the bottom will be left with nothing if, for example, a cryptocurrency turns out to be fraudulent.
- Be wary of anyone you do not know asking you to buy or send cryptocurrency for a specific purpose. Many cryptocurrency scams are similar to scams that involve gift cards, wire fraud and other currency. Familiarizing yourself with common scams, such as government impersonation or romance scams, can thwart a fraudster’s attempts to steal your money. Additional information about scams is available on the Attorney General’s website.
- Do not invest with anyone who offers guaranteed or suspiciously high return rates. Guarantees of returns with high percentages and promises that your initial investment will be doubled or tripled can be the hallmarks of a Ponzi scheme. Investments, especially those seeking high returns, fluctuate over time due to ever-changing market conditions.
- Remember, most unsolicited messages about investment opportunities are scams. Scammers can easily reach you by texting, calling, emailing or using direct messaging apps or social media. Be suspicious of any unsolicited communication that asks you to invest in a cryptocurrency opportunity, offers to help you make money in cryptocurrency or requests your financial information. Legitimate entities like the Internal Revenue Service, the U.S. Postal Service or state government agencies will not contact you via text message.
- Do not invest in cryptocurrency just because it was endorsed by a celebrity. Recently, several celebrities have allegedly violated securities laws related to their endorsements of crypto. Remember that celebrities, and even reputable news stations and news websites, are often paid to promote products.
- Do your homework before investing in any cryptocurrency. Recently, scammers have been creating fake exchanges, investment platforms or cryptocurrency staking or mining services. Consumers who believed they were investing in the next big thing were actually sending their cryptocurrency directly to a scammer. A dedicated scammer may even create fake social media profiles or websites touting the reputability and success of their new platform or investment opportunity.
- Protect your online privacy when accessing cryptocurrency. Use a secure network and never share your password or the key to your digital wallet. Consider using a virtual private network when accessing and trading cryptocurrency.
Raoul encourages consumers who believe they have been a victim of a cryptocurrency scam to report the scam by visiting the Attorney General’s website or by calling Raoul’s Consumer Fraud Hotlines:
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