Crypto payments have given scams a huge boost. That’s the sad truth and the dark side of the dawning crypto age. Cryptocurrencies have become scammers’ favored means of payment. U.S. Congress wants to know what U.S. crypto exchanges such as Coinbase, Binance.US, FTX, Kraken, and KuCoin are doing to prevent crypto-related fraud. In separate letters sent to each crypto exchange, the House Committee on Oversight and Reform expresses concern over the rapid growth of fraud and consumer abuse.
The lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding many consumers and investors have, make crypto a preferred transaction method for scammers. Moreover, scammers would create fraudulent cryptocurrencies, list them on exchanges, and deceive consumers. In its Crypto Crime Report 2022, Chainalysis noted that these so-called “rug pulls” accounted for roughly 37% of cryptocurrency scam revenue in 2021, compared to 1% in 2020.
The committee’s letters refer to data from the U.S. Federal Trade Commission (FTC) suggesting that over 46,000 people in the US lost a combined $1 billion due to crypto scams since the start of 2021. Investment and romance scams have been particularly lucrative for bad actors, who collected about $575 million and $185 million from either scheme, respectively.
The letter explains that rug-pull scammers would hype up a coin to increase its value, only to shut down the project and make off with the assets themselves. Some exchanges would “allow digital assets to be listed with little or no vetting,” which prevents exchanges from finding potential vulnerabilities and puts users at risk of theft. Legislators have reasons to be concerned about fraudulent listings, the letter explains.
The Subcommittee requests that the crypto exchanges contacted provide documentation explaining the measures taken by the exchanges to combat scammers and crypto-related fraud.
