Pig Butchering Crypto Scams are scams which resemble the practice of fattening a hog before slaughter. “Victims invest in supposedly legitimate virtual currency investment opportunities before they are conned out of their money. Scammers refer to victims as “pigs,” and may leverage fictitious identities, the guise of potential relationships, and elaborate storylines to “fatten up” the victim into believing they are in trusted partnerships before they defraud the victims of their assets—the “butchering.””.
On 9/8/23, FinCEN issued an alert on the prevalent Virtual Currency Investment Scam commonly known as “Pig Butchering”. Since then, pig butchering crypto scams continue to rise and remain profitable for the perpetrators. Chainalsys 2024 Crypto Crime Mid-year Update reports that “Pig butchering is the largest revenue-generating scam type YTD” and that scammers are moving “away from elaborate Ponzi schemes toward more targeted campaigns like pig butchering in recent years”.
SEC’s first enforcement actions alleging Pig Butchering Crypto Scams
On 9/17/24, the SEC issued Press Release 2024-134 stating that five entities and three individuals in connection with two relationship investment scams involving fake crypto asset trading platforms NanoBit and CoinW6 were charged. The SEC stated that the schemers allegedly used WhatsApp, LinkedIn, and Instagram to lure investors to fake crypto asset trading platforms before stealing their money. “The SEC’s two complaints allege that the defendants solicited investors via social media apps, lied to them to gain their trust and confidence, and then stole their money. These charges are the SEC’s first enforcement actions alleging these types of scams.”
“Relationship investment scams, including those involving crypto asset investments, pose a risk of catastrophic harm to retail investors, and the threat is increasing rapidly as these scams become more popular with fraudsters,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. In these two cases, we allege that fraudsters created fake crypto ecosystems that displayed false information to investors. Our allegations serve as a reminder to the public to be on heightened alert about potential scams involving investment opportunities promoted by strangers on social media.”
Other Federal Agencies are also stepping up their involvement and partnering with others
On 9/11/24, the Commodity Futures Trading Commission (CFTC) announced two partnerships to give customers targeted information about cryptocurrency relationship investment scams. “These partnerships focus on a relationship confidence fraud the perpetrators commonly refer to as ‘pig butchering,’ that is estimated to cost Americans billions each year.” The Commodity Futures Trading Commission’s Office of Customer Outreach and Education (OCEO) is partnering with the American Bankers Association Foundation along with other federal agencies and a private regulator to distribute an infographic to help consumers recognize and avoid so-called “pig butchering” fraud. “U.S. Security and Exchange Commission’s Office of Investor Education and Advocacy, the Financial Industry Regulatory Authority, and the North American Securities Administrators Association to develop and distribute an investor alert that gives customers a clear picture of how “pig butchering” scammers work their way into the minds and wallets of everyday, knowledgeable people. It targets individuals who think they would never fall for this type of scam by giving them an introspective on how these fraudsters have perfected their criminal craft to entice even the savviest investors. One way all investors can protect themselves is to stop the scam before it starts by not responding to unexpected or unsolicited text messages from unknown senders. Report them using the phone’s “report junk” option or by forwarding unwanted texts to 7726 (SPAM)”.
How does a Scammer perform “Pig Butchering”?
- Scammer makes initial contact with a potential victim through text messages, direct messages on social media, or other communication tools and platforms, usually under the guise of accidentally reaching a wrong number or trying to re-establish a connection with an old friend. The scammer, who may claim to be an investor or money manager, may also create a social media profile which showcases wealth and an enviable lifestyle. Once the scammer elicits a response from a victim, the scammer will communicate with them over time to establish trust and build a relationship.
- Scammer introduces the victim to a supposedly lucrative investment opportunity in virtual currency and directs them to use virtual currency investment websites or applications designed to appear legitimate, but which are fraudulent and ultimately controlled or manipulated by the scammer. This includes the use of legitimate applications with third-party plugins that allow the scammer to manipulate or falsify information presented to the victim. A scammer may also request remote access to the victim’s devices to register accounts with virtual currency service providers on the victim’s behalf or instruct their victims to take screenshots of their device so that the scammers can walk them through the process of purchasing virtual currency. According to the FBI, many victims also report being directed to make wire transfers to overseas accounts or purchase large amounts of prepaid cards to purchase virtual currency. The use of virtual currency and virtual currency kiosks is also an emerging method of payment.
- Scammer directs the victim to “invest” the funds through the investment websites or applications, although the funds are funneled to virtual currency addresses and accounts controlled by scammers and their co-conspirators.
- Scammer will leverage high-pressure sales tactics such as telling their victim that they will lose out on the opportunity if they do not invest by a certain deadline.
- Scammer may also encourage the victim to bring their friends and family to invest into the scheme or invite the victim to join online or mobile games, advertised as “play-to-earn” games offering financial incentives to players, but which in reality are fake gaming applications created by the scammer to steal virtual currency from players.
- Scammer will show the victim extraordinary returns on the investment that have been fabricated. The scammer may even allow the victim to withdraw a small amount of that investment to further build the victim’s confidence before urging the victim to invest more. Victims have been known to liquidate holdings in tax-advantaged accounts or take out home equity lines of credit (HELOC) and second mortgages on their homes in order to increase their investments.
- Scammer will use even more aggressive tactics to extract any final payments. The scammer may present the victim with supposed losses on the investment and encourage them to make up the difference through additional deposits.
- Scammer may demand that the victim pay purported taxes or early withdrawal fees. Once the victim is unable or unwilling to pay more into the scam, the scammer will abruptly cease communication with the victim, taking the victim’s entire investment with them.
Investor Alert from the SEC’s Office of Investor Education and Advocacy (OIEA), the Commodity Futures Trading Commission’s Office of Customer Education and Outreach (OCEO), the Financial Industry Regulatory Authority (FINRA), and the North American Securities Administrators Association (NASAA)
“No matter how trustworthy someone might seem, don’t make investment decisions based on the advice of anyone who makes unsolicited contact with you online or through an app or text message. Do your own independent research and ask questions.”
FinCEN reminds Financial Institutions of their fraud reporting responsibilities
In addition to filing a SAR, financial institutions are encouraged to refer their customers who may be victims of pig butchering crypto scams to the FBI’s IC3: https://www.ic3.gov/ and may also refer their customers to the Securities and Exchange Commission’s tips, complaints, and referrals (TCR) system to report investment fraud: https://www.sec.gov/tcr . In the case of elder victims of pig butchering, financial institutions may also refer their customers to DOJ’s National Elder Fraud Hotline at 833-FRAUD-11 or 833-372-8311.
Financial Institutions ought to recognize that accountability and enforcement are at the forefront of FinCEN’s path
FinCEN states that financial institutions, including depositary institutions, money services businesses, casinos, and others, must maintain an effective risk-based AML/CFT compliance programs that allow them to effectively detect and report suspicious activity involving financial crime. FinCEN works with law enforcement, Federal functional regulators, national security agencies, and foreign counterparts to implement an effective AML/CFT regime.
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