You could be forgiven for thinking an investment manager would be unlikely to fall for a crypto scam – but it happened, and this one lost nearly R7m. Crypto fraudsters are very clever. Be extremely careful when investing in crypto. If it looks too good to be true, it probably is. Reprinted from The Guardian, by Rupert Jones – 2023-10-10
Investment manager tells of how fraudsters managed to persuade him to hand over his life savings
A senior manager at a UK investment firm has told how he was conned out of his £300,000 life savings by cryptocurrency scammers.
Matthew Thomas* says he was “probably blinded by a mixture of greed, curiosity and stubbornness” when he was ensnared by the elaborate and complex scam which took place over six months.
The details of his experience, which he has shared in an attempt to stop others getting stung, emerge as tough new marketing rules for crypto firms aimed at providing better protection for UK consumers came into force on Sunday.
The scam that ensnared Thomas began in January when he was contacted by a friend who had started using a crypto trading app that he believed was based in the US.
By July he had lost more than £300,000, some of which (about £60,000) was money he raised by borrowing on his mortgage, with a further £20,000 obtained via a loan from work which he intends to pay back over the next couple of years. “It started off seeming very legitimate,” he says. But gradually, over time, the scammers “pull[ed] various levers” to get more money.
Thomas, who is in his 40s, was told that the trading app’s strategy was to make money from buying and selling cryptocurrencies across different exchanges by spotting price differences. It had apparently developed AI bots that would scour the markets and swoop in when these discrepancies arose.
Thomas says the strategy “sounded a bit too good to be true” but that these sorts of opportunities do exist.
He had to set up a crypto wallet, which allows its user to send, receive and spend cryptocurrencies, deposit some cryptocurrency in it, and then link it to the trading app. This allowed the bots to use his balance to trade, and he would get regular updates on how much profit he had made.
Initially, Thomas only staked a small sum, and it all worked as promised: he was making a profit, and he was able to send funds back to his crypto wallet, convert them to pounds and transfer them into his bank account.
He was then told he qualified to participate in an “airdrop” event. In the world of crypto, an airdrop is a marketing strategy where new coins or tokens are sent to existing wallet addresses, such as one held by Thomas. With this airdrop, he was told he would earn extra profits provided he topped up his wallet balance to a set amount.
He told the trading app’s customer services he was happy to be enrolled in its $100,000 airdrop – meaning he would have to have this amount as a minimum balance on the app. “However, they instead enrolled me in a $200,000 airdrop.” He complained but was told there was nothing that could be done, and he should just complete the airdrop to unlock his funds and profits.
“I was very tempted to give up at this point but, after some research, I found that airdrops were common and that once the terms of them are met, funds are released. I therefore cobbled together whatever savings I could and completed the airdrop.”
The funds were unfrozen in the app and he was able to withdraw them back to his wallet. But then he watched as the money went straight back into the app.
“I was told I had been ‘lucky’ to be selected for an increased airdrop at $400,000, with even greater rewards for participating. This was done without any sort of permission from myself,” Thomas says.
He contacted customer services staff and was told that “they had ‘nothing to do’ with this airdrop, and that the ‘AI bots’ had decided to give me this airdrop”.
“At this point I really smelled this to be a scam, and I started to realise how powerless I was … I should have stopped here, but whether it was my stubbornness, my curiosity to see how this ends or just blind faith that I would get my cash back, I did everything I could to top up the additional $200,000. This involved using all remaining savings I had, as well as borrowing from my mortgage and work,” he says.
In two weeks he was able to complete the airdrop and press the “withdraw” button on the app. “Except the money didn’t come back to my wallet,” he says.
At this point customer support staff told him that they had detected that some of the money “may be from illegal sources, and that the IMF [International Monetary Fund] had frozen the funds … They said I needed to deposit 20% more funds to unlock the balance. I was livid.”
He contacted the IMF, which confirmed it would never get involved in that sort of thing. “On contacting customer support again, I was told I was wrong and that the IMF was involved, which I knew was a lie.” He reported the trading app to the FBI and reluctantly concluded that his money was lost.
Then, in July, the app’s customer support messaged him to say that it had teamed up with one of the world’s best-known crypto exchanges. Apparently, the latter was able to extract frozen funds from failed airdrops into a crypto wallet held with the exchange.
“Possible light at the end of the tunnel? Or another scam? At this point I had written off all of these funds, so I went along with it,” Thomas says.
He was given details of an account at a messaging platform so he could communicate with the exchange.
“I probably should have done something straightforward,” he says, such as verify that the crypto exchange did indeed use the messaging platform [which it doesn’t], “but I was too caught up in the fact I had a chance to get my money back to notice.”
Over the next 48 hours he dealt with someone who seemed to have extracted his funds from the trading app. “However, I was unable to access them as they were still ‘frozen’, and they required a 10% deposit to run the unfreezing process.”
His funds were in a separate wallet, far from the trading app’s clutches. “I was on the home straight,” he says.
So Thomas borrowed the necessary $40,000 and handed it over, but nothing happened. He contacted the customer support (which he now knows was fake) and was told the unfreezing process was not successful.
“You guessed it: I now had to deposit a further $80,000 … At this point I am completely beside myself – it’s the hope, and having that hope dashed, that kills you.”
He has reported the scam to various authorities, including the FBI in the US and the National Crime Agency in the UK. He has also taken his case to the UK’s Financial Ombudsman Service.
“I now feel a sense of relief … I was tired of living in a state of hoping mixed with frustration mixed with anger mixed with my own disappointment in myself,” he says.
Thomas warns people to be very wary about linking a crypto wallet to a trading app. “It’s a bit like telling someone your bank account details and saying ‘Go and make money out of my bank account.’”
For its part, the City regulator, the Financial Conduct Authority, says it “continues to remind people that purchasing crypto assets remains high-risk and that they should be prepared to lose all their money”.
* Not his real name
For more information
SD Law is a firm of experienced attorneys based in Cape Town, with offices in Johannesburg and Durban. If you want to know more about cryptocurrency, or if you have concerns about a crypto investment you hold, call Simon on 086 099 5146 or email email@example.com.
- Cryptocurrency compliance
- Anti-money laundering regulations and cryptocurrency
- Cryptocurrency – the wild west or a carefully regulated environment?
The information on this website is provided to assist the reader with a general understanding of the law. While we believe the information to be factually accurate, and have taken care in our preparation of these pages, these articles cannot and do not take individual circumstances into account and are not a substitute for personal legal advice. If you have a legal matter that concerns you, please consult a qualified attorney. Simon Dippenaar & Associates takes no responsibility for any action you may take as a result of reading the information contained herein (or the consequences thereof), in the absence of professional legal advice.