These are tough days for cryptocurrency investors. The values crater. Prominent crypto firms are faltering. And it comes after a massive wave of criminal scams that have hit crypto users with undisclosed billions of dollars in losses, with no relief in sight.
Take Austin Powers and The Italian Job actor Seth Green, who was hit unusually hard last month. Green, like other celebrities joining the crypto craze, had bought several digital artworks that used blockchain technology, which underlies cryptocurrency. When digital art is minted as non-fungible tokens, or NFTs, it can be tracked, sold, and even stolen, which has happened to so many NFT holders now that Green sounded almost resigned when he announced he’d been ripped off, too.
“Well frens it happened to me,” Green tweeted, writing that he was duped by a fake website that hijacked the articles. He requested cryptocurrency exchanges to keep his stolen art from being sold further as he tried to track down the buyer who eventually received one of his most prized possessions: Bored Ape #8398, a drawing of a sad monkey with a halo inside a Phoebe skeleton -Bridgers style shirt.
Some outsiders have outright mocked crypto fans for what they see as tulip mania, spending life savings on digital drawings anyone can view online for free. But many crypto supporters are drawn to the experimental and entrepreneurial community that has gathered around the technology, which many scammers believe is ripe for exploitation.
Bored Apes are among the most collectible NFTs rumored to come with intellectual property rights, and Green was planning to use his ape as a character in an upcoming animated series.
Green eventually tracked down the buyer who bought the monkey from the hacker for the equivalent of more than $100,000 and allegedly bought the monkey back for an even larger sum, BuzzFeed News reported. “Had to chase the NFT ourselves to the current owners who bought it and make a deal between us to return it as we were both scammed,” Green tweeted May 31. “I’m still actively working with an international art theft and cybercrime team to track down the original thief.” Greens officials declined requests for an interview.
“Last month I was cheated out of over 400,000. It was a horrible experience,” tweeted another user at Green. “I’m sorry for you,” Green replied. “We, the early adopters, figure out the necessary improvements in real time.”
The growth of crypto fraud has been exponential in recent years. Reported losses to crypto scams in 2021 were 60 times larger than in 2018, the Federal Trade Commission reported earlier this month, with crypto now accounting for 1 in every $4 lost to fraud in reports monitored by the agency are. Over 46,000 people have lost more than $1 billion in crypto to scams since 2021, but the actual total of losses is likely far greater as most scams go unreported, the agency said.
Adults under the age of 50, often those hoping to ride the crypto asset surge, have been the biggest victims: “Since 2021, $575 million of all crypto scam losses reported to the FTC have been to bogus investment opportunities , far more than any other type of scam,” the agency reported.
Financial losses specifically from NFT crimes were already more than 600% higher as of May this year than in all of 2021, with the space seeing double the number of hacks and escalating heists, according to analysis by digital privacy firm Top10VPN.
For many victims, there is little hope of getting their lost art back. The marketplaces that sell NFTs — crypto exchanges — cannot cancel or reverse fraudulent transactions in the way a traditional bank or credit card company could; The whole point of crypto was to eliminate these types of financial intermediaries that many crypto fans are very suspicious of.
Cryptotechnology was built out of a “libertarian ethos” where “there is no nanny state to take care of you,” said Jeremy Goldman, an intellectual property attorney who specializes in legal issues related to cryptoassets. “These are the consequences when something goes wrong… there’s no one to resolve it, you can’t call customer service, you can’t go back to the mother ship, you can’t go back to the bank.”
But at the same time, law enforcement agencies in the US have also shown a growing willingness and ability to conduct sophisticated crypto fraud investigations.
In March, federal agents in Los Angeles arrested two men, Ethan Nguyen and Andre Llacuna, on suspicion of conducting a $1.1 million “fraud pull” in which officials said they had a series of ” Frosties’ NFTs sold to investors as a sign of future benefits and then disappeared. Court records show no pleas were filed and say the defendants’ attorneys are negotiating with prosecutors to resolve the case.
The case demonstrated sophisticated skills by federal agents “to track the money and track blockchain-based transactions,” Goldman said. “They did a really good job following the breadcrumbs.”
Earlier this month, a federal grand jury indicted a former employee of crypto exchange OpenSea for insider trading, claiming he would buy NFTs before featuring them on the site’s homepage, which would inflate their retail value.
Federal agents have also exercised another legal power to crack down on crypto-crime: confiscation of civilian assets, the sometimes controversial method by which officers seize money or homes suspected of involvement in crimes.
Also in March, federal agents sought a court order to confiscate around $165,000 worth of Ethereum in a Binance.US digital wallet. Officials said the cryptocurrency was stolen from an Orange County investor nicknamed “PM,” who was tricked into giving up his coins by a scammer pretending to be a Coinbase tech support representative. The title of the case: United States of America vs. Approximately 40.997711 Ethereum Digital Currency. (Like all forfeiture cases, the case is brought by the government against the property itself, not the suspects who own it, who are sometimes never prosecuted.)
Firms like Chainalysis have argued that while overall crime losses have undoubtedly increased, illicit activity accounts for a decreasing share of crypto activity as crypto becomes more popular and firms may have become more sophisticated at fraud prevention.
However, Simon Migliano, head of research at Top10VPN, is cautious about accepting the prospect that the scam picture is improving. “In principle, it’s perfectly fair to say that when the share of illegal use of that technology in overall use decreases, it’s typically positive and a sign of a mature technology,” Migliano said.
However, he added: “Until now, crypto has been an ever-growing bubble that somehow defied all reasonable expectations that it would burst. In my view, it is a little dangerous to downplay the rising numbers of crude fraud in this way when a new technology has been growing at such an unsustainable rate.”
Some users, lacking an easy way to get their property back or hold scammers directly accountable, have turned to civil lawsuits to take action against the institutional actors who contribute to the functioning of the marketplace and who they believe are responsible Sure to get this market place.
A user who, like Green, experienced the digital equivalent of a very expensive pickpocket by a scammer and lost NFTs, including monkeys, that he bought for more than $200,000, sued several defendants including Yuga Labs, the company that made the monkeys originally created in federal court in Nevada.
The complaint argued that Yuga Labs — which designed its NFTs so the company can continue to earn 2.5% of revenue even from the sale of illegally stolen monkeys — is complicit in the fraud market because it continues to provide special benefits to monkey owners they hold were stolen or not.
“They refuse to police their own community, they are the gatekeepers, they can lock the thieves out if they want and they won’t,” said Emily Nuvan, a lawyer representing the plaintiff in the Robert Armijo case , by the Armstrong Teasdale Company of Salt Lake City.
Yuga Labs disagreed with the plaintiff’s allegations.
“The theft was unfortunate, not only because valuable NFTs were stolen,” the firm’s attorneys wrote in a June 3 court filing. “In this case, the tragedy is all the worse because it was the plaintiff – nobody else – who opened the door, unlocked the safe and, regrettably, let the thief in straight away. Instead of directing his anger at those who actually wronged him and acknowledging his own wrongdoing, the plaintiff is now trying to blame those events elsewhere.” The firm declined to contact The Times to voice NFT thefts.
Nuvan pointed out in an interview that Yuga Labs had suffered hacks itself, pointing to the larger fraud problem facing the space that needs to be fought when ordinary consumers are involved.
“These scams are so pervasive that you are almost guaranteed to be hacked, scammed, or stolen because the entire security burden has been placed on these users,” Nuvan said. “And they’re not able to do that because the scams are too sophisticated.”
For similar reasons, crypto skeptics and law enforcement experts are concerned about celebrity involvement in the crypto space.
“For the common person who is extremely gullible, they will consider these securities, commodities and safe investments because they are backed by people who adore them,” said Claire Nolasco Braaten, associate professor of criminology and criminal justice at Texas A&M -San Antonio, who has covered crypto prosecutions in the US. “There should be a warning, such as
But for Clarence Guillory III, 27, a blockchain editor known online at @sensei_shui, who estimates he’s lost $30,000 worth of crypto to various scams over the years, fraud is part of the cost for investment in experimental environment costing even many crypto scams victims remain excited to explore.
“It’s the same mentality as being a pioneer. The people who settled California accepted the risk they were taking,” Guillory said. Every time he’s been tricked, he said, “it helps me become a better person and see the impact of my decisions. I take responsibility for myself and the decisions I have made. If you box, you will be beaten.”
https://www.latimes.com/entertainment-arts/story/2022-06-17/la-ent-crypto-crime-wave The crypto crime wave is real and it’s gotten worse.