Don’t dive head first into that crypto pool, FBI warns

July 22, 2022 TH Author

The FBI has warned cryptocurrency owners and would-be owners about a scam involving phony liquidity mining that the bureau says has cost victims more than $70 million in combined losses since 2019.

Liquidity mining is an investment strategy that appears to reward investors for contributing some of their crypto assets to a pool, which provides traders the liquidity necessary to conduct transactions. And in return, each investor receives a percentage of the profits, thus earning money without making any active investment decisions. Or rather, that’s the promise.

Fraudsters are targeting Tether and Ethereum owners in this scam, and finding victims by just about any means possible — direct messages, social media, dating apps, messaging services, and word of mouth, according to an FBI alert [PDF] this week.

The crooks spend a few days or weeks building relationships with their victims, then give them a quick tutorial in cryptocurrencies (if they don’t already own any tokens), and finally coax them into liquidity mining by dangling a one to three percent daily return on investment guarantee.

Scammers don’t differentiate between individuals who own or do not own cryptocurrency, and the scheme does not require a minimum investment — allowing the victims to “invest” (read: lose) as much digital currency as they want.

After conning their marks into linking their crypto wallets to phony liquidity mining apps, the scammers then wipe out the victims’ funds by moving the digital coins into their own wallets.

After realizing their money has been stolen, and not actually invested, victims usually contact the wallet provider or customer service portal on the scam app. “Individuals purporting to be customer service representatives for the scam may present one of several explanations as to where the money went and why it is no longer accessible, culminating in the assertion that the victim needs to deposit additional funds in order to receive their money back,” the FBI noted.

Unsurprisingly, depositing more funds does not enable victims to get their money back.

Despite dire warnings that a crypto winter is coming, or already here, cryptocurrency and related NFT scams still prove profitable to crooks and phony liquidity mining apps are just the latest example that criminals will find a way to make a buck, whether that’s in paper money or bitcoin.

A report earlier this year by the blockchain watchers at Chainalysis noted that cryptocurrency-based crime hit an all-time high in 2021, with illicit addresses receiving $14 billion, representing a 79 percent increase year over year. To be fair, overall transaction volume skyrocketed much higher than criminal activity and was up 567 percent compared to 2020.

However, as more legitimate users try out digital transactions, it’s a safe bet that crooks will follow the money.

Earlier this week the FBI issued an alert about cybercriminals posing as legitimate investment firms and cryptocurrency exchanges, convincing people to download bogus apps and then deposit their tokens into wallets owned by the crooks. To date, the Feds have identified 244 victims of that particular scam, saying that $42.7 million was stolen between October 2021 and this May.

Meanwhile, law enforcement officials have vowed to crack down on this new wave of digital fraud, and yesterday announced criminal charges against a former Coinbase manager in would could be the first-ever cryptocurrency insider trading scheme in the US. This action followed the first-ever insider trading prosecution involving NFTs last month.

And while the medium for these crimes may be new, the end result (for victims and the crooks) remains the same — as does the FBI’s latest advice for how to avoid drowning in a liquidity mining scam: “Do not send payment to someone you have only spoken to online, even if you believe you have established a relationship with the individual.” ®