The use of cryptocurrency is becoming so mainstream that the IRS has moved the question about virtual currency to a more prominent position on page 1 of the individual tax form. Some states are even developing programs to allow taxpayers to pay their state taxes using cryptocurrency.
On the other hand, crypto’s popularity has also opened up users to damaging scams. An emerging scheme that has captured the attention of law enforcement is a scam called, “pig butchering.” The name comes from the idea that the scammers work their victims for a long time (fattening their prey) before moving in for the financial slaughter.
The scam is elaborate and reportedly involves the use of forced labor of individuals across Asia who have been kidnapped and trafficked to places like Cambodia where they are forced to scam complete strangers over the Internet every day.
This article published by KrebsOnSecurity contains more details, but the broad outline of the scam goes something like this:
The cryptocurrency scammers search dating apps and other social media sites for victims. Sometimes the initial contact is made by what appears to be a random or mistaken text message. Once the conversation is started, the scammers move the conversations to WhatsApp. Eventually the scammer will claim to have inside knowledge about the cryptocurrency industry and can help the victim make money. While they engage in multiple conversations with their prey, they will never do a video call, always finding an excuse not to show their face. The scammers then begin laying breadcrumbs for their victims, eventually leading them to participate in sophisticated cryptocurrency investment platforms.
The investors see strong returns on their deposits until they try to withdraw the funds. It is at this point that the investors are told they owe large tax bills. Even if the victims pay the alleged tax bill, they never recover their initial investment or any reputed gains.
To illustrate the complexity of the scams, KrebsOnSecurity relates the experience of “Courtney.” Courtney has a background in investment finance and had started investing in cryptocurrency in the past year.
Courtney said her nightmare began in late 2021 with a Twitter direct message from someone who was following many of the same cryptocurrency influencers she followed. Her fellow crypto enthusiast then suggested they continue their discussion on WhatsApp. After much back and forth about his trading strategies, her new friend agreed to mentor her on how to make reliable profits using the crypto trading platform xtb.com.
“I had dabbled in leveraged trading before, but his mentor program gave me over 100 pages of study materials and agreed to walk me through their investment strategies over the course of a year,” Courtney told KrebsOnSecurity.
The mentor directed Courtney to create an account on a website with a confusingly similar name to a legitimate investment site. The fraudulent site was highly sophisticated with different investment packages.
But after investing more than $4.5 million of her own money over nearly four months, Courtney found her account was suddenly frozen. She was then issued a tax statement saying she owed nearly $500,000 in taxes before she could reactivate her account or access her funds.
Courtney said it seems obvious in hindsight that she should never have paid the tax bill. Because xtb-market and her mentor cut all communications with her after that, and the entire website disappeared just a few weeks later.
Courtney’s story is just one a growing number. The Internet Crime Complaint Center reported it has received more than 4,300 complaints related to crypto-romance scams, resulting in losses of more than $429 million. In April, the FBI issued a warning to be on guard against pig butchering scams, which it said attracts victims with “promises of romance and riches” before duping them out of their money.
The following are tips from the FBI on avoiding crypto scams, although these are relevant for avoiding any kind of scheme:
- Never send money, trade, or invest based on the advice of someone you have only met online.
- Don’t talk about your current financial status to unknown and untrusted people.
- Don’t provide your banking information, Social Security Number, copies of your identification or passport, or any other sensitive information to anyone online or to a site you do not know is legitimate.
- If an online investment or trading site is promoting unbelievable profits, it is most likely that—unbelievable.
- Be cautious of individuals who claim to have exclusive investment opportunities and urge you to act fast.