Value of UK crypto fraud rises 32% to £226 million in a single year

by | Nov 28, 2022

Share this article

The value of reported UK cryptocurrency fraud has jumped by 32% in a single year, from £171 million to £226 million*, shows data from Pinsent Masons, the multinational law firm.

The number of fraud reports has also increased to 10,030, 16% more than last year’s total of 8,676.

Hinesh Shah, Senior Associate Forensic Accountant and Financial Crime Investigator at Pinsent Masons, explains that despite the fall in cryptocurrency prices, the association of cryptocurrencies with huge windfalls has continued to attract investors who lack the necessary skills and experience to tell a legitimate cryptocurrency investment from a fraudulent one.

Although the value of cryptocurrency assets has plummeted, less seasoned investors may still be lured in by the prospect of large profits such as those made by crypto investors during the boom period. There is also a concern that scammers may be proactively targeting these inexperienced investors.

Since the value of cryptocurrencies plummeted (between November 2021 and July 2022) , an increasing number of ‘rug pull’ scams have been unearthed. A ‘rug pull’ is where crypto developers abandon a project and run away with investors’ funds. These are being discovered more frequently since the collapse in crypto values, as investors ask to recover their funds and find they are unable to.

Says Hinesh Shah: “Whenever times are tough, fraudsters always seek to prey on less experienced investors by promising huge returns. Given the huge sums which some crypto investors made during the boom, scams involving cryptocurrencies can be especially potent for smaller investors who may be desperate to make a ‘quick buck’.”

“People should always be cautious when they receive an unsolicited suggestion to invest, from sources which they don’t recognise. This is especially true when it comes to cryptocurrencies.”

Rising crypto fraud levels have led to enforcement agencies such as the police struggling to keep up with fraudsters, who are constantly evolving and becoming more sophisticated. In the past year, fraudsters have used a number of techniques to defraud crypto investors, including:  

  • Fake celebrity endorsements, such scams claiming to have the endorsement of Elon Musk and Richard Branson earlier this year
  • ‘Rug pulls’, in which the developer of a ‘legitimate’ token steals the funds raised from investors. The Squid cryptocurrency scam is one infamous example of a rug pull scheme
  • ‘Pump-and-dump’ scams, the traditional technique used by equities fraudsters in which they create investor excitement around an asset and sell their own holdings when the price rises. This has been given new life in the unregulated crypto market
  • Fraudulent Initial Coin Offerings (ICOs), in which the new token being ‘launched’ does not exist

With police stretched to full capacity dealing with more traditional policing issues, Hinesh Shah says that the civil courts may provide a faster resolution for victims. People who have lost money are increasingly looking to pursue fraudsters through the crypto exchanges they use to launder and realise their gains.

Fraudsters can be pursued using asset freezing and disclosure orders, which can force exchanges to freeze a cryptocurrency wallet and provide information on its owner through Know Your Customer (KYC) regulations. However, civil claims can be expensive and are likely not to be worth the cost unless the victim has lost very considerable sums.

Hinesh Shah says that there is a possibility that in the future, smaller investors who have lost sums of a few thousand pounds each could club together in a class action against the crypto areas who facilitated fraudsters.

Adds Hinesh Shah: “Given the scale and increasing value of crypto scams, we are likely to see exchanges being pursued through civil courts more frequently. We may even begin to see class actions against crypto exchanges being put together.”

The rising value of crypto fraud in the UK:

 

*Reports of cryptocurrency investment fraud to Action Fraud, year ending September 30 2022. Action Fraud is the UK Government’s national reporting system for fraud and cyber-crime.

Share this article

Related articles

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, designed to fit perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode