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How to spot a cryptocurrency scam

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Four red flags that may mean that ‘bulletproof’
investment opportunity isn’t what it seems.

Investing in digital currency, as with traditional currency, can be a sound financial choice when done cautiously and by following the right advice. But where there is money – digital or otherwise – there are scammers.

The Financial Ombudsman Service (FOS), an independent Government-backed body responsible for investigating disputes between consumers and financial institutions, recently reported that over half of all investment scams they investigated in the first quarter of the 2022/23 financial year were related to cryptocurrency fraud.

If you are considering investing in cryptocurrency, even if you already have an established investment portfolio or consider yourself a seasoned professional, it is important that you are aware of the common tactics, and can spot and avoid the hallmarks of a cryptocurrency scam.

In cryptocurrency scams, fraudsters target individuals looking to invest in digital currency and use sophisticated social engineering and manipulation techniques to trick them into parting with hard-earned cash.

Common crypto scams tactics include:

  • Impersonating legitimate investment firms
  • Stolen ‘wallets’
  • Illegal trading
  • Fake trading websites and social media accounts
  • Phishing pages

Many of these scams include an element of Authorised Push Payment (APP) fraud, an increasingly common form of fraud in which the individual being scammed is coached and manipulated into willingly making bank transfers to the scammer’s account for what they believe to be a legitimate transaction.

Unfortunately, once the payment has been made, the criminals will often move the funds onto another, often offshore, account making it virtually untraceable.

The old saying ‘if it seems too good to be true, it probably’ is, has never been more relevant than with cryptocurrency and investment scams. Sites or individuals boasting 8 or even 10 per cent returns are unlikely to be genuine and are using inflated promises to get your attention and, ultimately, access to your finances.

Due to the nature of cryptocurrency, its value goes up and down frequently and so there are never any guarantees as to how cryptocurrency investments will perform.

Similar to utilising lofty promises to catch your attention, cryptocurrency scammers often use flashy and persistent social media adverts featuring claims of impressive returns and even celebrity testimonials to try and add legitimacy to the scam.

Action Fraud, the UK’s national reporting centre for fraud and cybercrime, announced that between March 2020 and April 2021, it received “over 500 investment fraud reports which made reference to a bogus celebrity endorsement, with losses reaching over £10m”. Celebrities such as Gareth Southgate, and Prince Harry and Meghan have seen their likenesses used to tout fake crypto schemes, without having any connection to the investments.

Criminals may also copy the branding of legitimate investment sites and companies to convince victims of their authenticity, including impersonating genuine brokers and staff members.

Some scammers will ask victims to download remote access software to their personal computers on smart phones in order to take control of their devices under the guise of ‘helping to set up accounts’ or show them the ropes.

The fraudsters may suggest that it will be quicker, and easier, to get the accounts up and running if they take over, but instead, they now have access to all of your accounts and passwords.

Every cryptocurrency has a whitepaper as part of the Initial Coin Offering (ICO) that outlines how the currency has been designed, how it will grow and how it works. Fraudulent, or scam currencies will either have no ICO whitepaper, or it will be very poorly written or difficult to understand.

The best way to keep yourself safe from cryptocurrency investment scammers is to familiarise yourself with the red flags, but you can also protect yourself in other ways including:

  • Never allow someone else – even someone claiming to be a legitimate broker – to open a crypto wallet for you or have access to your login details, passwords, or devices.
  • Don’t be taken in by elaborate and glossy marketing – genuine cryptocurrency investment opportunities are unlikely to push themselves as aggressively as the scammers do.
  • Don’t act too quickly – take time to do your research and assess what you can actually afford to invest. If a ‘broker’ is pushing you to spend money or cryptocurrency urgently, walk away.
  • Speak to an adviser regulated by the City watchdog, the Financial Conduct Authority (FCA) – spending a little money initially to save your finances in the long term could be a shrewd investment!
  • Use the FCA’s Warning List to check if the firm you’re dealing with is on their radar as one to avoid and double-check the firm’s contact details on the FCA website.
  • Don’t mix dating and investing – a common cryptocurrency scam tactic is to befriend and form a ‘relationship’ with a victim via online dating apps or social media, also known as a romance scam. Don’t let someone you’ve never met tell you what to do with your money.

If you find yourself in the unfortunate situation of becoming a victim of a cryptocurrency investment scam, do not feel embarrassed – these types of scams are sophisticated and increasingly common, with £266 million being stolen from investors in 2022 alone.

The first thing you should do after detecting an Authorised Push Payment scam is report it to your bank, the police and Action Fraud. Banks in the UK have a duty of care to provide safeguards and procedures to prevent fraud from happening in the first place, including security questions, monitoring accounts and blocking suspicious transactions. If your bank is refusing to award compensation following a cryptocurrency APP scam, and you believe they have not upheld their duties, then you can have your case independently investigated by the Financial Ombudsman Service (FOS).

Sarah Spruce, Head of the APP fraud team at TLW Solicitors comments:

“Cryptocurrency scammers are becoming increasingly sophisticated with their targeting methods, and the stats from Action Fraud are quite alarming, so we want consumers to be aware of the hallmarks of a scam in order to stay safe when investing.

However, the stats also show that these scams are on the rise, and so there should be no shame in reporting if you have been targeted and lost money, even if your bank is refusing to compensate. There are steps that you can take and the experienced team at TLW Solicitors are more than happy to discuss your case and explore all your options.”

If you, a friend, family member or colleague have lost money to a cryptocurrency investment APP scam, get in touch to see if we can help.

TLW Solicitors has years of experience dealing with FOS cases and will deal with your claim with efficiency and attention to detail. We understand the timescales, processes and intricacies involved in a FOS application, and our sophisticated case management systems mean you will always be kept up to date with the progress of your case.

We work on a no-win, no-fee basis, so contact us for a no-obligation, confidential conversation about your case. Call us on 0800 169 5925, email info@tlwsolicitors.co.uk or fill out one of the forms below.

Getting advice as soon as possible is essential as strict time limits can apply.

Meet Our Team

Meet Sarah, who heads up our experienced Authorised Push Payment Fraud Claims team.

Sarah and her colleagues are on hand to help with your claim.

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