Action Fraud Fund report exposes extent of cryptocurrency fraud
Philippa Aylmer writes that between the start of 2021 and mid-October, just over GBP146,000 had been lost to cryptocurrency fraud, according to Action Fraud Fund, the UK’s national reporting centre for fraud and cybercrime.
This is almost a third more than was lost throughout the whole of 2020. Over half of crypto fraud victims were aged 18 – 45 years old, with 18 to 35 year olds accounting for the highest percentage of reports (11 per cent) and the average loss per victim was around GBP20,500.
Action Fraud received 558 investment fraud reports (all of which made reference to a bogus celebrity endorsement) between April 2020 and March 2021 – with over 79 per cent of reports mentioning cryptocurrency as the commodity they invested in.
The squid game token was one of the highest profile scams in recent months. Squid’s developers made off with around USD3.3 million (GBP2.48 million), according to technology website Gizmodo.
“These pump and dump schemes are far from unusual, with many crypto fans desperate to catch a ride upwards on a rapid growth trajectory with the hope of raking in short term profits,” says Susannah Streeter, senior investments and market analyst at Hargreaves Lansdown.
“Unlike the desperate characters in the hit show the token purported to represent, investors didn’t risk their lives, but some are likely to have risked piles of savings, to spin the crypto wheel of fortune,” says Streeter. “The writing was on the wall that the token had the hallmarks of a scam. Having soared thousands of per cent in less than a week, the rug was pulled, the website closed, and it lost all value.”
The regulator has repeatedly warned about the risks of holding speculative tokens. In a speech to the Cambridge International Symposium on Economic Crime in September 2021, Charles Randell, Chair of the FCA and the Payment Systems Regulator, stated that “these tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle. We simply don’t know when or how this story will end, but - as with any new speculation - it may not end well.”
According to the FCA, around 2.3 million people currently hold unregulated transferable tokens. However, with the level of understanding of cryptocurrencies declining and attitudes towards cryptocurrency normalising – fewer users regard them as a gamble now – the fact that 14 per cent use credit to purchase them is a concern.
“Around a quarter of a million people seem to think that they will be protected by the FCA or the Financial Services Compensation Scheme if they go wrong. They won’t,” stated Randell. The FCA currently has a limited role in registering UK-based crypto asset exchanges for anti-money laundering purposes and has published a list of unregistered crypto exchanges that are suspected of operating in the UK, to help consumers avoid using them. And last year it banned the sale of crypto-derivatives to retail consumers.
Randell also stated that “the potential level of consumer harm that these purely speculative tokens bring raises the question of whether the activity of creating and selling the tokens themselves should be brought within FCA regulation.
“It’s difficult for regulators around the world to stand by and watch people, sometimes very vulnerable people, putting their financial futures in jeopardy, based on disinformation and fear of missing out,” he added.