Consumer Bulletin: Cryptocurrency scams increasingly targeting and exploiting Canadians

Scammers exploiting public interest in crypto investing

A growing number of Canadians are interested in investing in new categories, such as cryptocurrency, but these emerging technologies and platforms are unfamiliar to most investors, giving fraudsters the advantage when they are looking for people to target. According to the RCMP, fraud involving cryptocurrency rose 400 per cent between 2017 and 2020. What had been hundreds of cases (734) in 2017 jumped to thousands of cases (7,598) in the first eight months of 2020, causing losses of almost $11 million dollars to Canadians since the onset of the pandemic.

Cryptocurrency, such as bitcoin, is a type of digital currency that is based on a decentralized, peer-to-peer (P2P) blockchain network. Digital currencies are not issued by a central bank and lack the controls and stability of traditional currencies. Cryptocurrency and blockchain are innovative emerging technologies that are promoted as having the potential to disrupt and significantly transform traditional financial systems. Canadian regulators have begun regulating cryptocurrency investments and platforms and many investments based on cryptocurrency can be bought and sold on open exchanges and Canadian stock markets. Legitimate investment opportunities in the cryptocurrency and blockchain sector exist, but the sector is also rife with scams and fake investment schemes.

At OBSI, we have seen a significant increase in complaints related to cryptocurrency and fraud. In several of these cases, consumers have withdrawn money from a bank or credit card account and sent it to a legitimate cryptocurrency dealer for conversion into cryptocurrency, before transferring the cryptocurrency to fraudsters posing as staff from an investment firm.

Anyone considering a cryptocurrency investment should be aware of the threat posed by these frauds and be sure to protect themselves by recognizing the red flags before they fall victim.

How does a cryptocurrency scam work?

Below are two examples of a typical cryptocurrency scam, based on real cases OBSI has investigated. In each scenario, a cryptocurrency investor was misled by a fraudster and lost thousands of dollars before realizing they were the victim of a fraud.

OBSI case example # 1

Ms. P was a senior eager to invest and increase her retirement savings. Unexpectedly, she received phone calls from two different investment firms. Both firms encouraged her to invest in cryptocurrency and promised high returns. Ms. P thought she had found a new and lucrative investment opportunity and asked the firms how she could start investing. The firms explained that her account needed to be financed with bitcoin if she wanted to move forward with the investment opportunity. Ms. P asked her bank to send several e-transfers that totalled $1,300 from her personal line of credit to four cryptocurrency dealers, so she could buy bitcoin.

Prior to granting Ms. P’s e-transfer request, her bank asked her if she knew the people to whom she was sending money and warned that it could be a scam. In response, Ms. P confirmed that she knew the account manager and insisted that the bank had no right to stop her from investing her own money. Following Ms. P’s instruction, the bank sent the e-transfers to the cryptocurrency dealers, and the equivalent in bitcoin was delivered to her.

Shortly afterwards, the investment firms showed Ms. P charts to indicate that her investments were profitable and recommended that she invest more. When Ms. P withdrew $30,000 from her personal line of credit about four weeks later, the bank cautioned her and provided her with a fraud prevention document to increase her awareness of potential fraud. Despite the bank’s attempt to flag the possibility of fraud, Ms. P authorized multiple e-transfers to send the $30,000 to multiple cryptocurrency dealers to buy more bitcoin. Once again, she transferred the equivalent in bitcoin to the two investment firms.  Ms. P continued to withdraw additional money from her personal line of credit to finance her bitcoin investment accounts. After six months, she had invested a total of $52,600.

The investment firms assured Ms. P that her investments were profitable, and she was eager to access the profits. She contacted both firms to withdraw her funds. However, neither firm would release them. After her withdrawal request, they also stopped responding to her calls and emails. Ms. P realized that she had been scammed by both firms. She lost all of the money that she had sent to the scammers. 

OBSI case example # 2

Mr. U was young and had limited investing experience. While on social media, a woman approached him and introduced herself as a cryptocurrency broker. She said that she could help him invest in cryptocurrency and promised quick profits. She advised Mr. U to purchase bitcoin so he could start investing on a cryptocurrency trading platform she knew about.

Over a two-week period, Mr. U sent e-transfers worth $7,000 from his bank account to a legitimate cryptocurrency dealer. Once the dealer delivered his bitcoins, he transferred them to the broker with the understanding that she would invest the funds using the platform she told him about and trade on his behalf. Mr. U thought that if he could earn some investment income it would help to ease his financial hardships. 

Soon afterwards, the broker sent Mr. U screenshots from the trading platform to indicate that the value of his crypto investments had soared. He immediately requested the option to cash out and told her to transfer his money back to him. She advised Mr. U to lock his investment in for longer because his profits were increasing. When he insisted that she return his money, she agreed to release the funds and told him that he should see them in his bank account soon. After he had waited a few hours and had not received the money, Mr. U realized that he had been scammed. Mr. U was not able to recover any of his money.

The important warning signs

Fraudsters will say anything and pretend to be anyone to steal your money, but there are often clues that hint at their true intentions. Understanding how cryptocurrency scams work can help you to avoid them. Here are some warning signs to watch out for:

• An investment advisor or investment firm calls or emails you out-of-the-blue to provide information about an opportunity to invest in cryptocurrency and make quick money. Legitimate cryptocurrency investments exist but trustworthy firms will not contact you with too-good-to-be-true promises.
• An investment advisor or investment firm that requires you to finance your investment account with cryptocurrency. This is dangerous because cryptocurrency is virtually untraceable. All legitimate firms will be able to accept traditional money transfers from a bank.
• An advisor or firm that promises high returns on every investment. Every investment carries the risk of losses and cryptocurrency prices are especially volatile. If you are told a crypto investment will only go up, you are being scammed.
• The investment broker or firm makes you feel that you need to make decisions fast and invest immediately, or you will miss out. Legitimate investment brokers and firms will give you time to think about your investing decisions.

Tips to protect yourself

Anyone can be the target of a scam. Here are some tips to avoid becoming a victim:

• Never send money or cryptocurrency to a stranger or someone you have not met in real life. Fraudsters know that it’s almost impossible to identify them once a scam is discovered if they have only given you false information about themselves that cannot be verified.
• Only deal with firms and professionals that are licensed to sell investments in Canada. You can confirm the registration of an investment advisor or investment firm with the Canadian Securities Administrators’ National Registration Search portal before investing. As an extra precaution, search online to see if other people have complained about the advisor or the firm or have linked either one to a scam.

• Do not invest with any advisor or firm that tells you the only way to invest is by sending the money through an e-transfer. Fraudsters will ask for an e-transfer because it cannot be reversed, and they use elaborate schemes to make the money difficult to track once it’s been sent.
• If your bank warns you of potential fraud, stop and think. Banks see a lot of scams and know the warning signs – their warning protocols are in place to help protect you from scams and help you avoid becoming the next victim. They don’t give these warnings to everyone – so if you receive one, put your transaction on hold while you think carefully about whether you might be dealing with a scammer. If the investment is legitimate, you will not need to rush.

• If you have any doubts about whether an investment you are considering is legitimate, talk to a trusted friend, family member, or professional in your life. They may not be able to give you investment advice, but they could help you recognize a scam.
• Do not be fooled by the promise of investment returns that are unusually high. No one, not even the best investment advisors in the world, can guarantee that the value of an investment today will remain the same or increase tomorrow.

Many consumers think their bank or cryptocurrency dealer will refund their money if they are a victim of fraud. But this often does not happen and depends on how the fraud occurred. In general, consumers are not protected from fraud when they have directed the bank or dealer to send money from their account to someone else’s because their agreement says they are responsible for all the transactions that they authorize. This means that the bank or dealer cannot be held responsible if you willingly transfer money or cryptocurrency to someone who turns out to be a fraudster.

Remember: Get-rich-quick schemes are not legitimate investments. Investing effectively requires a strong understanding of how the markets work and knowledge of the various products available. If you don’t have this knowledge yourself, find a registered professional advisor who does. If you are interested in crypto investing, there are licensed and regulated Canadian platforms and advisors who can help. If an investment seems too simple or too good to be true, it is. Stay alert to the risks and don’t be the next cryptocurrency scam victim.

Related resources

The Ontario Securities Commission guide: Get Smarter About Crypto
Canadian Anti-Fraud Centre: Using cryptocurrency safely
Financial Consumer Agency of Canada: Digital currency