Crypto scams are nothing new. However, that has not stopped scammers from taking big chunks of change from crypto investors around the world. In fact, loan scams are quickly becoming a very common type of cryptocurrency and investment scams. Scammers are also evolving with their tactics and playing on the psychology of their victims in order to steal funds. Investment scams have stolen millions of dollars from victims over the past few years. The best way to avoid being scammed is to understand the scammer’s tactics.

Here’s how the scam plays out:

You’re approached by someone on social media, a dating site, or another website that is sharing their successes on a particular investment. Maybe they’re asking for congratulations on making a certain amount of money, or they’re asking for wishes of good luck to continue making large sums of money through their investments. They may not ask you to invest immediately, but they will make it very clear that they are making an enormous amount of money. They want you to take their bait and ask questions.

The scammer may pretend to be just a third-party investor, but really, they’re behind the whole operation or a significant portion of it. Once they have your attention, either by you initiating the communication or them initiating it, they’ll start to tell you about the investment strategy. They’ll claim to be able to double your money in a short amount of time, but they’ll need a large amount like $100,000 to start. Most people don’t have $100K laying around and will decline to invest… until the scammer offers you a loan to get started.

Why would a scammer offer a loan? Well, it’s not a real loan. Unfortunately, the loan is an illusion, but you don’t know that. The scammer will offer a fake loan in an attempt to build trust with you. The scammer hopes you’ll think that because they’re able to offer you a loan, they’re a legitimate investment company. Being offered a large loan out of the blue might catch most people by surprise, but the scammer will counter your surprise with a compliment. They want to loan the money to you because they trust you. They see you as a trustworthy individual and they want to establish a mutually trusting relationship with you. Remember, there’s not an actual loan, the scammer is just making up numbers, but to the victim who has been dreaming of investing but has never had the funds, this is almost a dream come true.

Once you have accepted the fake loan, you won’t actually get $100K wired to you for the investment. The scammer will “send” the money to your account only to be used for the investment. Over the course of days or weeks, the scammer will send you fake account statements that will show your account making a significant amount of return. A common “rule of thumb” among scammers is known as 3X meaning they’ll make your account seem 3 times bigger than what it logically should be. This is an attempt to shock you with the idea that you have huge sums of money in an account, if they can distract you with big numbers, they’re likely to get more money. But they don’t have any of your actual money yet, so how is this a scam?

The scam comes in when it’s time to withdraw your funds. You may ask to withdraw some of your funds and the scammer may agree, but they’ll say you need to pay back the loan first from a different account. They’ll make up an arbitrary or regulatory reason as to why they cannot pull from the proceeds of your investment account. Then, the problems and excuses will cascade. The scammer may tell you that you have to fund a different account with a certain amount of money, pay large sums of taxes to withdraw funds, or require a specific amount of money in the account before withdrawals are approved.

Reading this you may think that you’d put a stop to the scam before getting to this point, but that’s part of the psychological attack that scammers use against you. Chances are, you’ve already mentally decided how this money will make your life better and easier, and maybe how you’re planning to spend it. The scammer is putting up blocks to those funds and cutting off access to the life you’ve already planned out. It’s a classic form of manipulation. They have something you really want and quite possibly need, but now you have to provide more without actually getting anything in return.

Once you begin sending money or cryptocurrency to the scammer, they will try to keep the scheme going for as long as they can until one of two things happen:

  1. You run out of money completely.
  2. You begin to get suspicious of their intentions and attempt to withdraw from your account.

If you run out of money, the scammer may try to manipulate you into borrowing money from family members or taking out a bank loan. If their attempts to get you to send them more money doesn’t work, they’ll cut all communications with you and disappear.

If you begin to become suspicious of their intentions and attempt a withdrawal, they’ll come up with a laundry list of reasons as to why you cannot withdraw. They may even attempt to flip the script on you and say “we think you’re a money launderer, so before withdrawing, you need to send them $5,000 for government fees to prove you’re not a money launderer”. They want to distract you from the real problem at hand, and the real problem is why you can’t withdraw your funds. And the answer is that the investment was an illusion.

Why do investment scammers offer fake loans?

There are two main reasons for investment scammers to offer fake loans. First, they’re trying to show trust at the beginning of the relationship. The more trust they can acquire with you the more likely they are to receive larger amounts of money. If they’re showing that they trust you right off the bat, they’re hoping you see this as an integrity move or a boost to your own ego. Secondly, it’s a way for them to make more money, you have to pay off the loan first, then they’ll threaten you with fees and withdrawal problems to get you to pay back the fake loan in wire transfers or cryptocurrency.

What can you do if you’re the victim of an investment loan scam?

If you suspect you’re in a scam investment situation, there are three immediate actions to take:

  1. Stop sending money.
  2. Maintain an open line of communication.  Do not accuse them of being a scam. Your conversations with them may help you gather intel later on. If you make them aware that you know of their scam, they could close off communication with you and you may never be able to track them down.
  3. Report them to the ICCC – Internet cybercrime commission, a part of the FBI. They may not take action immediately to investigate your case, but at least if it’s reported and turns out to be a large-scale scam, you’re already identified as a victim that is owed restitution.

New versions of old scams are constantly evolving. Once a scammer sees a method that works, many of them will use it until it’s discovered. The best way to prevent yourself from being the victim of an investment loan scam or any type of financial scam is to educate yourself on the tactics of scammers. In conclusion, if a random person on social media offers you a loan out of the blue with no strings attached, report it and pay it no mind. Investing can be a great way to create wealth, but before investing, educate yourself on the risks and arm yourself with knowledge.

 If you’ve been the victim of a crypto scam, we’re here to help.