In just the first half of 2024, investment scams netted Canadians nearly $107 million—almost half of that ($51.6 million) through cryptocurrency scams, according to the Canadian Anti-Fraud Center (CAFC). Crypto investments are the top type of investment scams reported to the CAFC, said Nancy Cahill, acting client and communications outreach officer. Less than 5% of scams are reported, so the real numbers are much higher.
Scammers often find victims on social media
Cryptocurrency scams often overlap with other types of scams—and the criminals behind them cast a wide net. Fraudulent artists often find potential marks on social media. According to TradingPlatforms analysis based on FTC data, about one third of crypto social media fraud occurs on Instagram, and one quarter on Facebook. Some tricks start out as romance scams. Once the suspects have gained the trust and love of the victim, they present an “investment opportunity” or ask for crypto or cash to pay for expenses incurred, such as medical bills.
10 types of crypto fraud
There are many types of scams to watch out for, and unfortunately, as investors become more knowledgeable, the scams evolve and become harder to spot. To protect yourself, always know where your money is going, understand crypto advertising laws in Canada, and only use trusted and compliant crypto trading service providers. (As a start, look at MoneySense's selection of the top crypto platforms in Canada, all of which are approved by the securities regulator to do business in this country.) A complete list of crypto scams is almost impossible, but to protect yourself, here are 10 to be aware of.
1. Faucet and disposal, or carpet pull
In a “pump and dump” or “rugby pull” scheme, cryptocurrency promoters inflate it to increase demand, and when the price rises, they sell all their coins for a quick profit. Because they sell in large quantities, some investors get nervous and sell their coins. As panic sets in and sales intensify, the coin's value falls. The promoters get rich and the small investors are left “holding the bag,” facing huge losses.
A bad example of an alleged crypto pumping and dumping scheme is a coin called Squid Game. Launched in October 2021, it became a hit with the Netflix series of the same name — despite not participating. Less than two weeks later, the crypto developers of Squid Game suddenly sold their assets when the coin's price reached $2,800, making them $3.3 million richer (all figures in US currency). Today, a single squid costs about a tenth of a cent.
The pump and dump scam is not the same as crypto, of course. That's what high-flying stockbroker Jordan Belfort is—the subject of a Hollywood movie The Wolf of Wall Streetstarring Leonardo DiCaprio—who was involved in the mid-1990s. His company was accused of illegally inflating the price of penny stocks before selling their shares to make a quick buck—costing investors as much as $200 million. In the early 2000s, Belfort served 22 months in federal prison for securities fraud. Now he is marketing himself as an investment expert.
2. A giveaway scam, or a 2-for-1 scam
In a gifting scam, someone asks you to send cryptocurrency to their wallet address, with the promise of sending you double the amount. “Send me 1 token, I'll send you 2” is a common refrain.
This type of scam is especially effective during crypto bull markets where investors may experience FOMO and the prospect of free crypto may seem too tempting to pass up.
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