Unregistered crypto brokers are a constant threat to the industry, and their methods are very simple to spot. Typically, the victims are introduced to the phony broker through a social media posting. The scammer will convince the victim to fund his or her account through a regulated exchange, only to withdraw it all into his or her own wallet and disappear. Luckily, there are ways to protect yourself from being a victim of this scam.
The Texas State Securities Board issued a cease-and-desist order against the fake company, Treasure Growth Investments. The owners of this company claimed to be Elon Musk, but were actually impersonators who promised 80% returns over 120 days. This practice involved a client paying into his or her broker’s account. The brokers have not been prosecuted, but the money that was lost was more than $200.8 million.
Other common practices that swindlers use are front-running and churning. Front-running involves making trades based on pending transactions. Insiders can leverage this information to make profitable trades. Churning is the practice of making excessive trades in order to earn commissions. Similarly, asset management firms will charge a fee for managing clients’ crypto holdings. These fees could also be used to defraud clients and rack up unnecessary tax liabilities.