Crypto Scams: Six Patterns Regulators Describe

Crypto fraud takes many forms, but regulators across jurisdictions have identified recurring patterns. The following six are drawn from published enforcement actions, investor warnings, and reports by bodies including the SEC, ESMA, and national financial supervisors.

A project launches a token, attracts investment, and then the founders withdraw the liquidity and disappear. The token becomes worthless. Rug pulls are common in decentralised finance, where smart contracts can be written to allow the deployer to drain the liquidity pool.

A coordinated group accumulates a low-liquidity token, then promotes it aggressively — often through social media and messaging apps — to drive up the price. Once the price has risen, the group sells, leaving later buyers with losses.

A fraudster builds a relationship with the target over weeks or months — often starting with a wrong-number message or a social media connection — then introduces a fake investment platform. The target is encouraged to invest increasing amounts. Withdrawals are blocked or subject to fabricated fees. The platform eventually disappears.

A fraudulent platform mimics a legitimate exchange or wallet application. Users deposit funds, which are immediately controlled by the fraudsters. The platform may allow small withdrawals initially to build trust before the larger theft.

After a victim has lost funds to a scam, a second fraudster contacts them claiming to be a recovery service. The victim pays fees upfront for a recovery that never happens.

Projects sell tokens to the public without registering the offering with the relevant securities regulator, in jurisdictions where registration is required. Investors have fewer protections and less recourse if the project fails or is fraudulent.

Regulators note several common features: guaranteed or unusually high returns, pressure to act quickly, requests to keep the investment secret, and platforms that are difficult to verify or are registered in obscure jurisdictions.

This article is for information only. It does not constitute legal or financial advice.