Source: Attorney General’s Office
In investment manager schemes, scammers contact potential investors claiming to be successful “investment managers.” These scammers often purport to represent well-known cryptocurrency exchanges or cryptocurrency mining enterprises. Many of them claim to have made millions from successful cryptocurrency investments and promise high returns on the victim’s investment. Typically, they set up sophisticated and official looking websites. However, once a victim transfers their funds to the “investment manager” through one of these websites, they often find the money can’t be withdrawn or that withdrawals are subject to large fees.
Initial Coin Offerings (“ICOs”) are the cryptocurrency equivalent of an initial public offering for stocks. Investors in an ICO are invited to buy a new cryptocurrency from, or get a stake in, a company representing a project. This, on its face, is not necessarily a scam. However, scammers may use ICOs as an opportunity.
One type of ICO scam, commonly referred to as a “pump and dump” scheme, involves a scammer convincing many people to invest in an ICO to drive up the price of the coin. The scammer then quickly sells off all their own holdings, thereby destroying the value of the coin and leaving the rest of the investors with nothing.
Investing in a new coin is inherently risky as most coins have no real value. Investment fraud involving cryptocurrency, such as ICOs, rose by nearly 200% from $907 million in 2021 to $2.57 billion in 2022, according to the FBI’s annual Internet Crime Report.
How to Spot and Avoid an Investment Manager or ICO Scam:
- Avoid people who offer to help you invest in cryptocurrency, especially if they claim high or guaranteed returns.
- Do your own research using trustworthy sources before investing your money, and don’t be rushed into making an investment.
- Run a general search to check whether there is another exchange or cryptocurrency with the same name to avoid investments through a fake copycat exchange or in a fake copycat cryptocurrency.
- Don’t invest money you’re unwilling to lose.
- Is there a whitepaper? A whitepaper should explain how the cryptocurrency has been designed and how it works.
- Look online to see if the project has been flagged as a scam. But be wary of interacting with people who claim to be victims. They may be part of a larger scam and try to steal from you in other ways.
- If an investment looks too good to be true, it probably is.