Crypto scam aimed at online acquaintances costs victims billions

By: Tory Newmyer
From: The Washington Post

Brian Bruce did not know much about cryptocurrency in the fall of 2021 when he invested nearly $200,000 in it through somebody who befriended him on LinkedIn,promising returns as high as 20 percent.

The 46-year-old logistics manager outside Memphis learned what an expensive mistake he had made just a few weeks later, when he was frozen out of his crypto investment account.

Bruce has been playing catch-up ever since. The crypto-based investment fraud that ensnared him, his subsequent probing revealed, has duped tens of thousands of victims around the world. And it has probably cost them billions, according to experts — much more than previous estimates from federal agencies.

In the last nine months of 2022 alone, victims lost more than $500 million on just one of the three blockchains targeted by scammers,according to a new analysis that digital asset intelligence company Inca Digital provided to The Washington Post. Ian Schade, a blockchain intelligence analyst at TRM Labs, said the full cost of the scams has probably reached into the billions over each of the last two years.

The scam strategy has a name — “pig-butchering,” referring to winning people’s trust with quick initial gains that scammers then use to lure bigger investments, fattening them up like pigs before the slaughter. The fraudsters meet potential targets on dating apps or other platforms, most recently including Airbnb. And perpetrators are making off with more than even most law enforcement officials realize.

Even as the crypto world endures a year-long slump exacerbated by the implosion of the trading exchange FTX and other high-profile firms, scammers have continued to snag new victims and rake in eye-popping hauls, the data show. Inca Digital analyzed a portion of the fraud, gathering data from eight leading exchanges that scammers use to lure their quarry and assessing only a slice of the crypto they target.

What is pig-butchering?

  1. The scammer meets a potential victim on a dating app or another social media platform.
  2. The scammer establishes trust with a potential victim by building a personal relationship, before suggesting that they invest in cryptocurrency.
  3. The scammer convinces the victim to set up an account on a trading platform such as Coinbase so they can start investing.4. The scammer then directs the victim to send their crypto to another investment platform, which is actually a fake platform controlled by the scammer.
  4. The scammer continues to encourage the victim to invest in crypto, encouraging them withdraw the funds to prove that it is legitimate.
  5. The scammer nudges the victim to invest more and more.
  6. Once the victim has made a sizable amount of money, the scammer steals the crypto and converts it to traditional currency before ghosting the victim.
  7. By the time the victim realizes what has happened, there’s little recourse they can take to get their money back. These scammers generally operate in China and Southeast Asia, so there is little U.S. authorities can do.

“It will become the costliest internet scam in the U.S. by dollars lost within a few short years, if it hasn’t done so already,” said Andrew Frey, a forensic financial analyst with the U.S. Secret Service.

But despite the fraud’s growing scale, federal law enforcement and the major crypto exchanges that scammers use to carry out these cons appear to be behind in cracking down. Federal authorities have yet to arrest any suspected architects of the scheme — a task they say is complicated by the fact its perpetrators are concentrated in China and Southeast Asia —and they are still determining how to contain it.

“The incentives are aligned for the scammers, because they can get away with it,” Inca Digital CEO Adam Zarazinski said. “Law enforcement is paying attention but probably not to the degree they should. Crypto service providers are paying some attention but not to the degree they should.”

Sensing a vacuum, a handful of self-trained amateur detectives and local law enforcement officials are stepping up to develop their own grass-roots response.

Bruce is helping lead that charge. In his spare time, he leads investigations for the Global Anti-Scam Organization, or GASO, a group dedicated to aiding victims of pig-butchering and staffed by 40 volunteers who are scam victims themselves. He has also emerged as a key resource for federal law enforcement officials, including making a presentation in November to a conference organized by the National Cryptocurrency Enforcement Team, the Justice Department’s crypto crime-fighting task force. A Justice Department spokesperson declined to comment.

In the meantime, local law enforcement officials are doing what they can to help victims. Erin West, a deputy district attorney in Santa Clara, Calif., has pioneered using tracing tools and novel legal methods to hunt down, seize and return stolen crypto — and she is sharing them with prosecutors across the country.

West scored her first successes in her jurisdiction in December, seizing more than $2 million in scammed crypto and returning assets to 10 fraud victims. “This is a step in the right direction, but I fully recognize we have so far to go,” she said. “There’s an immeasurable number of victims not being heard who have been devastated by this crime and continue to not be able to find any type of assistance.”

Jonathan Scharf, an assistant district attorney in Queens County, N.Y., acknowledged that law enforcement at all levels is struggling to help victims. “Our success rate is not great, and anyone who tells you otherwise is being very disingenuous,” he said.

Late last year, federal law enforcement officials scored their first successes against criminals involved in the scheme, arresting 11 people suspected of laundering pig-butchering proceeds and seizing seven domain names that fraudsters used to target victims.

“There is a need for greater resourcing to law enforcement and financial agencies … to identify and dismantle these criminal networks,” Carole House, former director of cybersecurity and secure digital innovation at the National Security Council, said in an email. She noted that the United States needs more help from partners around the world. “These networks operate across borders. The United States cannot do this alone.”

The challenge is compounded by the nature of the fraud, which combines elements of traditional romance and investment grifts into what the Secret Service’s Frey calls a “super-scam.”

Fraudsters frequently spend months earning the trust of their victims. After developing a rapport and moving the conversation off a social networking app and onto another messaging service, the scammer will mention their success investing in crypto and offer to coach the potential victim on how to turn their own profits.

Scammers explain to crypto newcomers how to set up an account with a name-brand trading exchange, such as Coinbase or, and tell them to deposit $1,000 or $2,000 there. They then direct them to send their crypto to what looks like another investment platform, though it is an account controlled by the scammer.

The scammer walks the victim through some initial trades that appear to produce healthy gains and then encourages the target to test the enterprise by withdrawing the funds. Convinced that huge returns are within easy grasp, many victims will overextend themselves, including taking out loans against their homes, to plow into the fraud.

Once scammers have secured a sizable haul from a victim, they typically move within hours to convert the stolen crypto into traditional currency. With most of the scam’s perpetrators operating out of Southeast Asia, frequently beyond the reach of federal agents, there is little U.S. authorities can do. It can take victims weeks or longer to realize they have been defrauded and then report the crime.

Inca Digital produced its estimate by analyzing the activity of crypto wallets known to be controlled by scammers. The firm studied those accounts’ transactions and then developed an algorithm to find other such wallets. And it traced the crypto that passed through those accounts in two directions: back to where victims first bought them on big cryptocurrency trading platforms, and forward, to other platforms and services the scammers use to obscure their trail. Then the money lands at another exchange, typically an international operator, where thieves trade the crypto for traditional currency.

Inca Digital, which provides crypto analysis for private firms and government agencies, found in the last nine months of 2022 that customers of top crypto exchanges lost $506 million. The analysis yielded just a portion of the scam. It focused only on the Ethereum blockchain, though the scammers also target the bitcoin and Tron blockchains.

Federal agencies have pegged victim losses at lower levels. The FBI’s Internet Crime Complaint Center said according to complaints it received in 2021, crypto-romance scams amounted to $429 million in losses. The Federal Trade Commission estimates that consumers lost $547 million to romance scams broadly in 2021, the most recent year it analyzed.

The exchanges say they are working to combat scams, including cooperating with law enforcement, blocking accounts known to be associated with scammers from interacting with their platforms and educating their users about threats. But they note that customers ultimately bear the burden of protecting themselves.

“It is the user’s responsibility to verify the legitimacy of any investment they are making off our platform,” Coinbase spokeswoman Lisa Johnson said in an email. “While Coinbase has a number of techniques to identify and block illicit addresses associated with fraud and other criminal activity, it is impossible to anticipate all addresses operated by external bad actors.” recently added a tool Inca Digital developed to detect scams in near-real time, to alert potential victims before they invest heavily. Company spokesperson Victoria Davis said the exchange takes other steps to protect users, including daily updates of blacklisted accounts.

The platform — on which pig-butchering victims lost nearly $300 million over the last nine months of 2022, according to Inca data, the most of any of any exchange it examined — also stresses that its customers need to stay vigilant. “Security is a shared responsibility,” Davis said.

With victim losses piling up, Bruce is pushing ahead with his campaign for justice. In late January, he traveled to Bangkok to meet with U.S. Embassy and law enforcement officials and a man who escaped a Myanmar complex where he says he was forced to carry out the scam.

“I may be one of the only hopes some victims have,” Bruce said. “And I want to see the criminals behind bars. That’s what keeps the fire in my belly.”