Headline: What is a “Pig butchering” cryptocurrency scam?
Date: 5/2/2022
Body: I was watching one of the podcasts I like (Legal Eagle) and he mentioned a few cryptocurrency scams. I thought this would make for a dandy blog post. But there were too many of them for only one post. So, we have already looked at rug-pulling, pump & dump schemes, and now we are led to a really terrible-sounding one (and it is) called “pig butchering.” OK, please stay with me, I promise we will keep things kosher, and there will be no pictures, but for text conversations.
Pig Butchering appears to be a slow-play to get cryptocurrency from people. It is serious. In 2021, there was an estimated $7.7 Billion in cryptocurrency fraud, and $139 Million of it was associated with this pig butchering approach. In a rug pull, or in a pump & dump, the focus is on speed. In this terrible paradigm, somebody is targeted, and temporarily the investment goes well. Then, over months, the mark is bled dry. Most often, it appears to begin over dating sites. I can only assume that there are bots out there, looking for target people. This is not surprising as the people on dating sites are probably lonely, and in a position to show off what wealth they have to a prospective mate. Don’t laugh: You might not believe some of the targets they successfully fleece. This includes a man with more than a 20-year tenure in all types of law enforcement.
WHAT?? HOW???
This man was slow-played, over several months, using pictures of an attractive woman, and there were several “gestures” shared between them. Text conversations were frequent and e-mail was pretty frequent too. Eventually, she got him to sign some sort of mining contract that promised to net him untold wealth. In reality, it allowed her and her associates to “mine” all of the cryptocurrency he owned. (They did this by having him sign up for a digital wallet at a site that was spelled very much like a reputable exchange. In a cruel twist, he can see his money, right on the blockchain, but he can never touch the $15,000.
OK, well, this guy was probably unique, yeah, I understand…
No, this gentleman was not unique, in any manner. As cryptocurrency investment in the United States skyrockets, Jenkins’s story is no longer a rarity. Scams are rapidly multiplying in the lightly regulated province of crypto, experts say, each boosted wallet and disappeared dollar underscoring just how mainstream the thievery has become. The Federal Trade Commission estimates that Americans lost $750 million to crypto scams in 2021, and the number could rise this year.
Law enforcement has been slow to rise to the challenge. The Justice Department recently announced a new task force focusing on cryptocurrencies, but it’s still very new and it remains to be seen how many scammers it can investigate, let alone arrest.
No one agency seems to have latched onto the scam that snatched Jenkins’s money, even though a Washington Post analysis of the blockchain records available suggests it is truly of staggering dimensions — with likely more than 5,000 victims in multiple states and $66.3 million stolen since August. The FBI did not respond to a request for comment.
Victims interviewed by The Post say that despite numerous attempts to alert law enforcement, they’ve yet to be contacted by authorities, leading them to believe no agency is even aware of the scam, let alone investigating it. Instead, they have organized on their own, in Reddit and Facebook groups, to commiserate and strategize.
“This is really, really hard because crypto is so thinly regulated and folks are used to picking up the phone and calling 911,” said Joe Rotunda, the enforcement director of the Texas State Securities Board, which investigates investment scams. “Oftentimes, the law enforcement agencies deal with violent crimes or street crimes. They simply don’t have the resources necessary to prosecute a case like this and don’t know where to turn.” Jenkins says that when he went to his local police station, they didn’t understand what he was talking about. He tried contacting both the FBI and Securities and Exchange Commission via their websites but never heard back.
Isn’t this simply some kind of Crypto catfishing?
Crypto catfishing appears to be a new harmony placed atop a very familiar melody. In the Old West, women were tasked to “interact” with a man who just had a lucky strike at a new mine, and find the location, so that the gold could be purloined first by somebody else. I have even heard of some religious sects using, well, sex, to lure new recruits into the fold. Is it any wonder that, with this new Internet tool, somebody is using a cat-fishing approach here too? The tricky bit (atop the beautiful woman) is that the concepts concerning cryptocurrency are so new. This means that an unethical person stands a pretty good chance to find a valid high-tech term and wrap an entirely nebulous cryptocurrency. The law enforcement gentleman above was lured in with a scheme called “liquidity mining.” (As an aside, as I write, in fact, a “woman” probably a bot is trying to catfish me on Facebook to do a similar thing.)
In case you were in any doubt, the mining certificate was phony, turned out to be one line of computer code, a smart contract that gave Alice complete access to his whole wallet. He went to the exchange and was unable to do anything to help. He contacted the staff of Tether (the currency he was denominated in) and they were unable to do anything either without a valid law enforcement request. Within the federal government, at least 6 agencies are angling to be the regulator of cryptocurrency, as their budget and prestige would expand. Given this environment, he found no help at all.
The pattern continues…
One woman went on Hinge, and met a “man” who surprise, grew up in the same remote village in China as her adoptive parents. She was slowly conned out of the $140,000 she derived from her late mother’s house. The money was earmarked to help her family create a new life in California, and slowly, Hao convinced her to move more and more into the now bogus wallet. When she saw the appreciation, she convinced her father to match the $140,000, which he did. When the account appreciated to $1.2 Million, she tried to cash out, and was told that there would be “tax” of $380,000. She’d been had. When she went tearfully to tell her father, she was truly gutted. “I messed up my life. I messed up my dad’s life,” Hutchinson said.
Are there studies that have been done?
The Washington Post did a study and found 5,046 similar accounts with an average loss of $13,000. (Quick math that’s $65,598,000 identified by the Washington Post, alone.) These thieves have to take a lot of money because, to meet the “right” person and sucker them so badly, takes a large investment in time and risk.
Who is being targeted?
Simple answer: EVERYBODY!! It’s not just the elderly and infirm being targeted, it’s professionals from all walks of life. The Fear of Missing Out (FOMO) effect is quite powerful. Powerful enough to overcome any kind of cynicism or conservative cast of mind. Per the Washington post report, it is the “savvy people in midlife are common victims” according to activists.
What can I do?
Well, you can do a lot.
- When you go online, if a “person” unknown to you tries to strike up a friendship, ask them how you know them, and look for real connections. If there are none, please consider not e-mailing back.
- Know that there is risks ahead of time.
- Contact your Representative or Senator and ask them to regulate these firms.
What do these scams look like out in the “wild?”
They are so insidious because the conversations begin in such a benign way. The following text exchange was the start of a pig butchering that was quite “successful.”
In many reported cases, scammers spend weeks or months in a relationship before bringing up crypto and the potential it offers. Anyone who uses the web is at risk of crypto scams – not just those who have crypto investments. In fact, scammers put a lot of effort into walking you through your first crypto purchase through legitimate exchanges like Coinbase or Binance, as the screenshot shared with CoinDesk shows below. Things only go downhill from there.
Scammer text message 2 (CoinDesk)
We might be tempted to laugh at this, but remember that this exchange and hundreds of others unfolded over months, and was engineered to seem very organic. I could present many more examples (roughly 56,000 reported in 2021, so, due to embarrassment, there were likely many more), but they all seem to follow the same script.
The Verdict
This is the point where I usually give you good news, alas, I have none in this case. This all seems to boil down to lonely people who have an intense FOMO feelings. Said one victim, “You hear all these stories about people becoming millionaires,” she said. “It just felt like, oh, well, cryptocurrency’s the new trend, and I need to get in.” So far, nothing public has been done for the victims. “The blockchain is kind of this permissionless frontier space,” said MetaMask’s Finlay. “You know, I don’t know if every user understands how much they really are kind of on their own.” As you consider investing in cryptocurrency, please keep this statement in mind.
Oh, and Mr. Jenkins mentioned above, is undeterred by his misadventure. Jenkins said he realizes now just how vulnerable he is. But, perhaps surprisingly, he wants to keep investing in crypto. “I just feel like there are ways to make money,” he said. “Sure, some of it feels too good to be true. But if you treat it like gambling, if you have that mentality and approach it wisely, you can make a lot more than having it sit in a bank.” He is right, it is gambling, and sometimes “The House” is not owned by your hosts. Be careful out there!!
REFERENCES
https://www.washingtonpost.com/technology/2022/04/04/crypto-scams-coinbase-liquidity-mining/
https://www.cbsnews.com/news/crypto-dating-scam/
https://www.coindesk.com/learn/crypto-romance-scams-dont-fall-for-these-dating-app-swindlers/
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.