It started with a reach-out on Facebook and the promise of making a fortune with bitcoin (BTC). Our reader, let’s call him Michael, admits to being embarrassed about falling for an obvious scam.
The sales pitch went something like this: Send $200 worth of bitcoin and we’ll turn it into $700 in a matter of weeks.
The scamster guided Michael through the process of purchasing BTC on Luno – which is a legitimate crypto exchange – and then explained how to ship the bitcoin to an address supposedly controlled by an entity called Bitcoinminingtech.
Sure enough, the $200 BTC appeared on a dashboard on the Bitcoinminingtech website, and after a month had grown to $710.
Then the scamsters came back for a second bite. Send another $600 in BTC to upgrade your account to ‘Level 2’ and we’ll grow your funds to $15 000, our reader was advised.
Michael did so, and was again vindicated – the dashboard reflected a balance of more than $15 000 after another month.
“This seemed fantastic, so I wanted to withdraw some of my profits. It was then that they asked for a $1 750 withdrawal fee,” he says.
It was at this point that Michael contacted Moneyweb to see if we could assist.
We advised him to stop sending money and broke the news that he had most likely lost his total investment of $800 (around R13 500). Anyone demanding a withdrawal fee equivalent to nearly 12% of the balance is likely a scammer.
There was a New York phone number. We called it and an automated answering service routed the call into a black hole.
Michael at least tried to do some basic due diligence. He asked to do a video call with the sales lady. What he got was not a live video but a static picture of a woman and music blaring in the background, something you might expect in a busy internet café.
But he was convinced enough to part with an initial amount of $200. The scamsters knew how to guide him through the process of opening a Luno account, funding the account, purchasing BTC, and then shipping it to an address they controlled.
Echoes of the MTI scam
Chainalysis rated Mirror Trading International as the world’s biggest crypto scam of 2020. It pulled in more than 29 000 BTC by promising returns of 10% a month through a trading bot. The Financial Sector Conduct Authority (FSCA) investigated and found no evidence of a bot.
US charges Johann Steynberg and MTI with defrauding 23 000 US investors
FSCA opens criminal case against MTI, says investigation ‘nearly complete’
MTI profiteers could be asked to pay back the money
An inside look at how MTI managed to prolong an extraordinary losing streak
MTI victims were guided through the BTC purchasing process in much the same way as Michael, and were schooled in how to handle challenging questions from crypto exchange staff.
“I’m involved in internal audits, and it’s my job to spot these scams, so yes, I am embarrassed I fell for it,” says Michael.
South African crypto exchanges have teams dedicated to picking up the more obvious scams, and monitor and flag suspicious addresses. Suspicious transactions are picked up and reported, and clients are often contacted to ensure they are not unwittingly participating in a scam.
We reached out to Eva Crouwel, head of financial crime at Luno, for some anti-scam tips.
Things to know
“It is important for the South African public to know that Luno is a cryptocurrency investment app, which offers a crypto currency wallet and a selection of cryptocurrencies for people to buy, sell and store,” she says.
“Luno does not trade on anyone’s behalf, nor do we offer trading tips or advice. We also don’t have investment advisors, financial planners or any sales people making contact with any of our customers.
“What this means is that if someone claims to be a Luno agent, investor, planner or advisor, whether it is on social media or a group chat, you should be very wary,” she adds.
“No legitimate Luno representative will ever contact you to make investments or promise returns of any kind.”
Luno takes proactive steps to identify potential scams and will block payments to wallets that have been flagged. However, once the bitcoin has been paid out of the Luno platform, it is impossible to reverse the transaction.
Signs of a crypto scam
Here are a few signs that an investment scheme is possibly a scam.
- A promise of guaranteed returns or returns that sound too good to be true.
- Opaque, vague or complicated organisations and explanations. The more jargon you hear that you don’t understand, the more wary you should be.
- Someone contacts you on social media or via a group and offers you big returns in a short time by trading on your behalf. (You might even be referred via a friend or colleague, so beware).
- Your contact asks you to pay for a ‘cost of transfer’, or taxes or any other fee to access your ‘profits’.
- You are asked to provide your Luno wallet information, whether to allow trading on your behalf or for any other reason. This is akin to giving someone your bank account login details.
- You meet someone online romantically, and they ask you to send them money.
- Someone famous is giving away cryptocurrencies if you just send them a small amount first.
Additional tips to avoid being scammed
Be extra careful (even paranoid) and verify the person or organisation you are dealing with by doing extensive online research and asking them specific questions about their business.
Often previous scams are replicated but with different names. Copy and paste correspondence into Google and see if there are examples of the scam being used before.
Fraudsters often rush you into making hasty decisions.
They are very persuasive. Take five minutes to really think things through. Don’t be afraid to terminate a conversation and walk away.
Read: How cryptocurrency scams work
Avoid brokers, account managers, traders, sponsors, agents and other people who offer to trade cryptocurrency on your behalf.
Do your homework – every smart investment begins with educating yourself. What is crypto, how does it work, and what problems does it solve? Ensure that you get your information from credible sources. Luno and all legitimate crypto exchanges in SA have blogs and learning portals.
“To identify credible platforms, look for those with a good reputation,” says Crouwel. “How many customers and wallets does it have? How easy is it to find information about the platform? What does the media have to say about it? Research whether there are proven and stringent safety and security measures in place to keep your money safe.”
What to do if you suspect you have been scammed
If you suspect you have been scammed, inform the exchange where you bought the crypto as soon as possible.
While they cannot get crypto that has been willingly sent to another wallet back, they can flag the wallet address provided by the criminals to prevent further transactions.
“If you have done your research and are ready to get started, buy directly using your own account,” says Crouwel.
“Start small – you can buy crypto with as little as R1 – and do not share your details with anyone. You can disable the ‘send’ function if your intention is only to hold the investment and not use it to pay anyone.”
Read: Bleak outlook for investors in liquidated Imagina FX scheme