Diving Headfirst Into the Crypto Pool Can Be Catastrophic: FBI
Recently the US Federal Bureau of Investigation (FBI) warned American crypto investors of a crypto scam using an investment strategy called liquidity mining. This scam has reportedly been responsible for over $70 million in combined victim losses since 2019.
In the alert issued by the law enforcement agency, Liquidity mining is explained as an investment strategy that appears to reward investors for contributing some of their digital assets to a pool, which provides traders with the liquidity necessary to conduct transactions. In return, the investor receives a portion of the trading fees, thus earning money without making any active investment decisions.
FBI stresses that swindlers are primarily targeting Tether (USDT) and Ethereum (ETH) owners in this scam and approaching victims by any means possible — direct messages, social media, dating apps, messaging services, and/or word of mouth.
The Internet Crime Complaint Center (IC3) of the FBI chalked out the modus operandi of such criminals. The IC3 found that bad actors spend a few days or even weeks building relationships with their victims to gain their trust, then give them a tutorial on crypto trading (if they are unaware), and finally coax them into liquidity mining by guaranteeing a 1% to 3% daily return on investment.
However, these fraudsters don’t discriminate between individuals who own and don’t own cryptos, and this scheme doesn’t require a minimum investment, which lures the victims to invest (and eventually lose) as much crypto as they want.
After conning their prey into linking their digital wallets to phony liquidity mining apps, the scammers wipe out the victim’s fund by moving the digital coins into their wallets. Once the victims realize the scam, they contact the wallet providers or customer service portals.
FBI states that the individuals purporting to be customer service representatives may present 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 to receive their money back. Unsurprisingly, depositing additional funds doesn’t help victims recover the money.
Meanwhile, the FBI suggested some measures to help investors be vigilant of such crimes. The precautionary measures are as follows:
- In a legitimate liquidity mining process, returns are usually tied to crypto market fluctuations in the specific crypto or crypto-pair being used. Investors in such mining operations deposit funds into the platform to later withdraw the original funds along with any returns generated. Reconsider joining pools that stray away from this procedure.
- Be careful while learning about investment opportunities via online research. Scam websites or apps are not advertised online since they aren’t allowed to be indexed by web crawlers, therefore, verify the spelling of web addresses, websites, and email addresses that look trustworthy, but may be imitations of legitimate websites.
- If the legitimacy of the domain bothers you, don’t connect your digital wallet to it.
- Authenticate all links sent from known and unknown contacts before clicking.
- Periodically use a third-party token allowance checker to determine if you have inadvertently permitted any sites or apps to access your wallet.
- Don’t send payment to someone you have only spoken to online, even if you believe you have established a relationship with the individual.
In conclusion, the FBI also urges investors to report such fraudulent activities to their official website. Unfortunately, while law enforcement can take action in some cases, it is rather unlikely that these scams can be ceased or interdicted by law enforcement alone if investors don’t take enough precautions.