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Pinsent Masons: Reports of crypto investment fraud continues to rise sharply – up 64% in a year to nearly 10,000 cases

Crypto investment fraud in the UK has continued to rise sharply in the UK with a total of 9,458 cases reported in 2021 up 64% from the 5,758 reported in 2020, says Pinsent Masons, the multinational law firm.

Hinesh Shah, Senior Associate Forensic Accountant and Financial Crime Investigator at Pinsent Masons, says: “The boom in cryptocurrency activity has continued to attract in fraudsters. For many amateur investors crypto currencies are seen as a get rich quick scheme – which is absolutely perfect for fraudsters who prey on investors’ desires to make an abnormally outsized and speedy profit.”

Despite the volatility of cryptocurrencies and warnings by regulators of scams and other risks in the sector, crypto assets have been seen as an increasingly mainstream investment, again helping cryptocurrency related fraudsters.

A study in June of last year by the FCA estimated that 2.3million adults in the UK already held crypto assets (roughly one in thirty adults). By the end of 2021, the total transaction value of all cryptocurrencies was $15.8 trillion – this was up 567% from the previous year. According to Chainalysis, cryptocurrency scams have become very successful and have cost victims over $7.7 billion globally in the past year.

Criminals have adapted techniques from other areas of white-collar crime to target potential crypto currency investors victims such as:

  • ‘Rug pulls’, whereby a creator of a new digital token attracts new investors then suddenly disappears, taking investor funds with them.
  • Social media posts, in which fraudsters promote bogus apps or websites (at times using unsuspecting public figures) to encourage users to make crypto investments.
  • Romance crypto scams, where fraudsters deceive unsuspecting love interests into parting away with thousands in the promise of a profitable crypto investment.

The growth in cryptocurrency fraud has raised concerns over the capacity of traditional law enforcement agencies in dealing with cryptocurrency fraud. Very specific skills and experience are needed amongst enforcement agencies to track fraudsters across jurisdictions and seize encrypted wallets.

Despite the challenges, individuals can take steps to recover lost funds through the civil courts. Courts may grant claimants substantial powers to do this, including:

  • A Bankers Trust Order (BTO), a disclosure order where victims can acquire confidential
    documents from a bank or other financial institution in order to trace assets.
  • A freezing injunction, an order that prevents defendants from accessing or dissipating assets that are related to the dispute.
  • A Norwich Pharmacal Order (NPO), another type of disclosure order in which victims can obtain information from third parties (such as Bitcoin exchanges) who are ‘caught up’ in the wrongdoing, helping victims to track fraudsters and recover their losses.

Hinesh Shah, at Pinsent Masons says: “As long as there is active trading in unregulated crypto currencies then we can expect fraudsters to target the sector. Regulators like the FCA are doing all they can to educate consumers of the risk of fraud but they face a major challenge. Where we are hopeful of improvement is in the speed at which crypto-currency fraudsters can be pursued through the civil courts in the UK. The UK civil courts have built up a reputation for a being an effective route for going after money that has been defrauded and the early signs are that they are dealing with crypto currency fraud in a similarly robust manner.”

*Reports made to Action Fraud, the UK’s centre for reporting fraud and cybercrimes. Year end December 31, 2021

Reports of UK crypto investment fraud jump 64% in a year

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