Crypto News Digest: Recent Crypto Scams and Frauds

Jun 6, 2024 | Crypto Scam Defense, Fraud | 0 comments

As crypto scams become more common and difficult to detect, they bring serious dangers to professional investors and crypto users. As reported by CBS News, the Better Business Bureau’s annual report on the biggest scams of 2023 confirms that scammers have become more creative, cheating investors out of their money based on 67,000 scam reports.

In this post, we explore some major scams in 2024 that have affected the crypto community, from big thefts and complex Ponzi schemes to serious email security breaches. Here is our Crypto News Digest, which helps everyone in the cryptocurrency market avoid the most common crypto scams.

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1. DMM Exchange Suffers $305M Bitcoin Theft in Shocking Security Breach

The Japanese cryptocurrency exchange DMM has been hit by a massive security breach, resulting in the loss of $305 million worth of Bitcoin. This hack, done by using a stolen private key, proves that the security of private keys on exchanges should not be taken lightly, both by users and the platforms themselves.

What Happened?

Late on May 30, 2024, analytics platform Whale Alert triggered the first alarms by reporting an unusual and large Bitcoin transfer: 4,502 BTC, valued at $305 million at current prices, moved from an unknown wallet to a new one. The crypto community on platform X speculated until DMM confirmed the fears the next day—its servers had been hacked.  

Exchange’s Response

Following the hack, DMM took quick action to minimize the damage:

  • Service Suspensions: Withdrawals, new account openings, spot buy orders, and new generated orders have been temporarily frozen to prevent further leakage.
  • Customer Assurance: DMM secured its users by announcing that all lost funds would be fully compensated, with the recovery plan involving the acquisition of the equivalent amount of BTC supported by companies within the DMM Group.
  • Security Measures: The exchange reported that immediate steps were taken to secure its platform against any further unauthorized access.

Forward Path and User Guidance

DMM has advised its users to stay alert for further notices as they work diligently to resume normal operations. The community watches closely, waiting for updates on recovery efforts and hoping for a resolution that might restore the trust in the security of crypto exchanges.

The Spreading Effect in the Crypto World

The recent security breach at DMM affects the company and confirms growing vulnerabilities across cryptocurrency exchanges. This is part of a troubling trend, as seen with the Poloniex exchange in 2023, which lost over $100 million, and a similar attack against GDAC in April 2023, resulting in $14 million in losses. 

2. Pig Butchering Crypto Scams Leads to Major Bank Defrauding

The term pig butchering might suggest images of a farm, but in the world of cybercrime, it refers to a devastating type of financial scam that has serious consequences. The latest victim? A Kansas bank, where the former CEO was seduced into a scheme that drained millions.

What is a Pig Butchering Scam?

Pig butchering is a scam in which the victim, referred to as the “pig”, is slowly fed with promises of high returns on cryptocurrency investments. The scammer builds trust, encouraging the victim to continually invest more money into supposed lucrative opportunities. 

However, scammers typically transfer these funds into accounts they control or into compromised apps.When the time is right, the scammer cuts all connections and vanishes with all the money invested, killing the metaphorical pig.

What Happened in Tri-State Bank ?

Shan Hanes, the former CEO of Heartland Tri-State Bank in Elkhart, fell victim to such a plot, taking $47 million from the bank. Convinced by an anonymous scammer over WhatsApp, Hanes made 11 transfers after scammers told him it would “unfreeze” his previously deposited funds.

Hanes admitted to lying to bank employees, its board of directors, and investors regarding wire transfers, resulting in large financial losses for bank stockholders estimated between $9 million and $13 million. Shan Hanes pleaded guilty and could face up to 30 years in prison, a $1 million fine, and up to $60.5 million in restitution.

DIC Takes Over Heartland Tri-State Bank After Insolvency

Heartland Tri-State Bank in Kansas declared insolvent. The Federal Deposit Insurance Corporation (FDIC) took over to protect insured customers’ access to their funds. Dream First Bank in Syracuse, Kansas, then acquired the bank, transferring all customer accounts to their system.

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3. $25 Million in 12 Seconds: MIT Graduates Charged with High-Tech Crypto Fraud

Two MIT alumni, Anton and James Peraire-Bueno, are charged with a sophisticated cyber fraud, accused of stealing $25 million in Ethereum within just 12 seconds. This shocking act could lead to sentences exceeding 20 years if convicted.

What is a Cyber Fraud?

Cyber fraud is the use of internet-based methods to trick and steal money or valuable assets from people or organizations. It includes various fraudulent activities such as phishing, identity theft, and other social engineering techniques to obtain illicit financial gains.

How Did They Commit Crypto Fraud in the Ethereum blockchain?

The Peraire-Bueno brothers committed crypto fraud by exploiting a vulnerability in the Ethereum blockchain’s transaction validation process. They accessed and modified pending private transactions, redirecting $25 million worth of Ethereum to themselves. This manipulation was part of a well-planned and technologically advanced scheme.

Both siblings, with impressive educational background from the Massachusetts Institute of Technology (MIT), reportedly used their advanced expertise to help commit the crypto scam.

Check out our article on how your information is stolen and shared online to commit crypto scams.

4. 85-Year-Old Ex-Lawyer Involved in Massive Crypto Ponzi Scheme

85-year-old former attorney David Kagel has admitted to participating in a cryptocurrency Ponzi scheme that defrauded victims of over $9.5 million. Kagel, once a respected legal figure in Beverly Hills, California, now faces up to five years in prison for his crimes.

What is a Crypto Ponzi Scheme?

A Ponzi scheme is an investment fraud where returns to earlier investors are funded by capital from newer investors, instead of profits from a legitimate business operation. This scheme leads investors to believe that profits are coming from legitimate business activities when, in fact, they are coming from the contributions of new investors.

These schemes often break down when it becomes difficult to attract new investors or when many existing investors decide to withdraw their funds.

How Did David Kagel Organize a Ponzi Scheme?

Kagel, along with co-conspirators, convinced victims into a Ponzi scheme investment by promising high profits. Court documents revealed that the scheme involved false guarantees and claims, including the use of AI trading bots to keep track of cryptocurrency investments. 

Victims received false information that Kagel, posing as the promoter’s attorney, held $11 million worth of Bitcoin in a secure account to protect their investments. He also sent out letters on his law firm’s letterhead falsely confirming that the investment programs were legitimate.

5. Alert Issued on Potential Email Vendor Compromise Impacting Crypto Companies

Paolo Ardoino, CEO of Tether, has sent a cautious alert about a potential breach involving a popular email newsletter provider used by cryptocurrency companies. This incident could lead to increased phishing threats within the crypto community.

What is a Phishing email?

Phishing email is a falsified message that appear to be from legitimate sources, designed to trick users into revealing personal information such as passwords, credit card details, or other sensitive data.

You can read here about 7 things could identify a phishing email.

What Happened with the Email Vendor? 

Paolo Ardoino, Tether’s CEO, reported that an email vendor used by various cryptocurrency companies, including Tether, was compromise. He posted this on social media platform X, stating that the breach might affect the security of crypto-airdrop-related emails received in the last 24 hours. 

Supporting Ardoino’s alert, Bobby Ong, CoinGecko’s co-founder and COO, confirmed that CoinGecko’s newsletter service could also receive impact. Ong warned of potential fraudulent email campaigns promoting fake token launches as a result of this breach.

Ongoing Email Phishing Risks in the Crypto Industry

Since 2023, the crypto industry has seen a rise in email phishing. During this period, hackers breached the Sandbox and used accessed email addresses to launch phishing campaigns. Other major crypto firms such as Nansen, Celsius, OpenSea, and Ledger have reported similar incidents.

Victims received false information that Kagel, posing as the promoter’s attorney, held $11 million worth of Bitcoin in a secure account to protect their investments.

In response to these attacks, companies like Tether and CoinGecko are advising users to use caution, particularly to identify emails related to crypto-airdrops or new token launches, to prevent further incidents and protect user data.

a smartphone on a desk with a security lock icon displayed on its screen, indicating that the device is secured]

Learn to Protect Yourself: Lessons from Recent Crypto News

Based on recent news reports and considering that approximately 80% of Americans were victims of cryptocurrency and investment scams last year, losing money, it is clear that everyone involved in crypto and digital finance must intensify their vigilance. 

Regularly updating security software, using strong protections for financial accounts, and carefully verifying the authenticity of information you receive are steps to take. Additionally, you can stay informed about protecting your finances from fraud and crypto scams by visiting us at Cryptoscam Defense Network.

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