In just the first half of this year, investment scams conned Canadians out of $161 million—most of it lost to cryptocurrency scams, according to the Canadian Anti-Fraud Centre (CAFC). “Crypto investments are the top type of investment scams reported to CAFC,” says Jeff Horncastle, the organization’s acting client and communications outreach officer. He adds that fewer than 5% of scams are reported, so the actual numbers are likely much higher.
Scammers often find victims on social media
Cryptocurrency scams are often intertwined with other types of scams—and the criminals behind them cast a wide net. “Unfortunately, everyone is targeted,” Horncastle says.
Con artists frequently find potential marks on social media. According to an analysis by TradingPlatforms based on FTC data, nearly one-third of social media crypto fraud happens on Instagram, and one-quarter on Facebook.
“In some cases, the scam starts as a romance scam and quickly turns into an ‘investment opportunity,’” says Horncastle. “Because suspects have gained the victim’s trust, it can lead to a high-dollar loss for the victim.”
10 types of crypto scams
There are many types of scams to watch out for, and unfortunately, as investors get savvier, the cons evolve and become trickier to spot. To protect yourself, always know where your money is going, understand the crypto advertising rules in Canada, and only use trusted and compliant crypto trading service providers. (As a starting point, see MoneySense’s picks for the top crypto platforms in Canada, which are all registered with Canadian securities regulators.) An exhaustive list of crypto scams is likely impossible, but to protect yourself, here are 10 to watch out for.
1. Pump-and-dump, or rug pull
In a “pump and dump” or “rug pull” scheme, promoters of a cryptocurrency hype it up to boost demand, and when the price soars, they sell all their coins for a quick profit. Because they sell in large volumes, other investors get nervous and sell their coins, too. As panic sets in and the selling spreads, the coin’s value plunges. The promoters get rich and small investors are left “holding the bag,” faced with huge losses.
A notorious example of an alleged crypto pump-and-dump scheme is a coin called Squid Game. Launched in October 2021, it rode the popularity of the Netflix series of the same name—despite having no affiliation. Less than two weeks later, Squid Game’s crypto developers suddenly sold their holdings when the coin’s price hit $2,800, making themselves $3.3 million richer (all figures in U.S. currency). Today, one Squid coin is worth about a tenth of a penny.
The pump-and-dump scam is not unique to crypto, of course. It’s what high-flying stockbroker Jordan Belfort—the subject of the Hollywood film The Wolf of Wall Street, starring Leonardo DiCaprio—engaged in during the 1990s. His firm was accused of artificially inflating the price of penny stocks before selling their shares to make lots of fast money—costing investors up to $200 million. In the early 2000s, Belfort served 22 months in federal prison for securities fraud. He’s now marketing himself as an investment guru.