News involving crypto and fraud is ubiquitous in the white-collar crime sphere and, perhaps more worryingly, these fraudulent activities in the crypto
News involving crypto and fraud is ubiquitous in the white-collar crime sphere and, perhaps more worryingly, these fraudulent activities in the crypto sector are not limited to a single type of crime.
Diverse and distinct yet with one common thread, these crimes involve real money and crypto investors are the victims. Many people have placed their life savings into crypto and, on a larger scale, private equities, pension schemes and even nation-states are principal investors and losers.
There are con artists who will try and entice their targets to invest in a get-rich scheme that turns out to be a Ponzi. On Nov. 21, officials announced that two Estonian citizens were arrested in a $575 million cryptocurrency fraud and money laundering scheme. Additionally, in September, United States authorities announced that the “head trader” of global cryptocurrency Ponzi scheme EmpiresX had pleaded guilty to conspiracy to commit securities fraud in connection with the theft of $100 million from investors. The unraveling of major frauds such as EmpiresX has become frequent in the crypto market, as fraudsters cash in on the bountiful opportunities for digital assets scams.
Then we have the institutional risk — the exchanges and platforms that present as being mainstream and stable but then collapse due to holes in their balance sheets where customer deposits should be. The spectacular recent collapse of FTX has sent shockwaves through the sector, which was already reeling from the effect of the “crypto winter” that saw coin prices plunge across the board. According to a filing in a U.S. bankruptcy court, FTX owes its 50 biggest creditors almost $3.1 billion, though the true cost of FTX’s demise is far higher in terms of the ripple effect tearing through the industry.
Related: My story of telling the SEC ‘I told you so’ on FTX
The role of regulators in FTX’s ability to fraudulently operate on such a vast scale will face much scrutiny moving forward. In fairness to the United Kingdom’s Financial Conduct Authority (FCA), the agency did issue a September warning stating that it believed FTX may be providing financial services or products in the U.K. without authorization. But the notice was confined to the FCA’s website. It was, apparently, not put on Twitter or disseminated much further. One must question the point of making such a warning without doing much more to try and make sure it reaches its target audience. The collapse of FTX is huge, but it will certainly not be the last of its kind.
In the wake of FTX’s demise, a deputy governor of the Bank of England called for the sector to be brought within the regulatory framework, warning that the continued growth of the crypto market meant action should be taken now, before an even greater shock than the FTX implosion occurs.
While this call to arms is welcome, it is not just about having rules — it is how these rules are policed and enforced that impacts bad behavior and improves market confidence.
Proponents of the sector seek to draw in breathless crowds by playing on the “disruptive” and “Wild West” nature of the crypto space, but it is precisely that feature that makes it so attractive to con artists and thieves. Cryptocurrency remains largely beyond the reach of both domestic and global financial regulation, making it a haven for criminals and leaving investors dangerously exposed, with almost no recourse for redress if they are the victim of crime.
Banks are turning away from, rather than towards, the market. Starling Bank recently announced they were imposing restrictions on customers’ crypto activity, which is likely to push crypto investors towards less safe avenues to complete transactions.
Crypto and blockchains have been labeled as disruptive tech operating in a decentralized space. In these parameters, it seems perhaps unwise to complain about the traditional financial system’s processes, which many criminal perpetrators have sought to evade.
There is a need for external education but also self-control from users. As commentator and founder of IBC Group Mario Nawfal said on Twitter in November: “Everyone keeps asking me HOW we missed the FTX scam. It’s simple: Greed. We were all making money, all of us, that we didn’t think about proper due diligence. We all followed each other, like sheep, trying not to be the idiot that misses out. We’re now paying our dues.”
Everyone keeps asking me HOW we missed the FTX scam
It’s simple: Greed
We were all making money, all of us, that we didn’t think about proper due diligence
We all followed each other, like sheep, trying not to be the idiot that misses out
We’re now paying our dues.
— Mario Nawfal (@MarioNawfal) November 23, 2022
Crypto trading should not be seen as little more than an extension of online gaming, but rather as a serious financial choice with real and risky consequences The gamification of crypto has been made possible by the viral spread of crypto and NFTs across…
cointelegraph.com