Ponzi schemes, pig-butchering scams, more: How to protect yourself from crypto scams

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A Stuart man was ordered Feb. 4 to pay more than $1.1 million for being the "master trader" of a fraudulent $100 million cryptocurrency Ponzi scheme, court records show.

Joshua Nicholas, 30, was touted as a "genius" and the head trader of EmpiresX, an international pyramid-style Ponzi scheme disguised as a cryptocurrency investment platform, according to the federal indictment. EmpiresX, founded in 2020 and defunct by the end of 2021, was operational in more than 50 countries, court records show.

But what is a Ponzi scheme, and how can you protect yourself from one?

Here are some different strategies used by scammers to get your money, along with some tips to be safe.

What is a Ponzi scheme?

A Ponzi scheme is when a person takes money from investors for a fraudulent business product. Investors think the money they are paid back is legitimate revenue from the business product, but it actually comes from newer investors. The scheme is structured like a pyramid. 

Still confused? Let's say a person takes $500 from two first-round investors. With that $1,000 pocketed, this person must find another batch of investors to pay at least $1,000 combined in order to pay back the initial investors and hopefully make a profit. The chain reaction continues to get bigger in terms of people and money invested.

What is a pig butchering scam?

A pig butchering scam is a type of long-term scam, which usually but not always combines the various forms of romance scams and investment frauds, in which the victim is gradually lured into making increasing contributions, usually in the form of cryptocurrency, to a fraudulent cryptocurrency scheme.

Romance scams are designed to establish a relationship with someone – often based on what that person has shared on social media or on a dating site – to develop trust and eventually exploit that person for financial gain. The scammer eventually gets their target to send money by saying they or a family member need financial help, or by offering a lucrative investment opportunity.

In 2023, the Federal Trade Commission reported losses to romance scams topped $1.14 billion among 64,003 victims. Full 2024 numbers have not yet been released, but for the first nine months of 2024, 42,399 victims reported a cumulative loss of $823 million, an FTC spokesman said.

West's Operation Shamrock educates the public, law enforcement and banking officials on the dangers of pig-butchering scams. That refers to a type of scam, including romance schemes, where multinational crime rings target victims to "fatten them up" (build trust) and then use sophisticated methods "to take every penny the victim has," West said.

While some victims can recover some of their monetary losses, most don't get their money back. Often the scammer asks to be paid in cryptocurrency, which is even harder to recoup, West said.

AI makes scamming easier – and it's going to get worse

The sophistication of scammers is growing and it will get worse.

"We live in an age of AI-powered fraud and scamming, so it's the sad reality," said Anusha Parisutham, senior director of platform and artificial intelligence at Feedzai, a company that helps financial institutions combat fraud.

While there are sophisticated human crime rings, AI is also increasingly being used to automate the schemes and lure more potential victims, said Parisutham.

AI is used to personalize messages after bots have scanned social media sites to gather information on the potential victim. Then AI can be used to reach out to multiple people in an automated manner, she said.

AI can also be used to clone or alter photos and voices to appear real when they aren't, said Parisutham.

Though the technology is getting more sophisticated and intuitive, Parisutham also believes that security and defensive moves to thwart scammers will improve, too, "so it's a continuous game of chess."

Avoiding crypto scams

One of the tell-tale signs of a scam, crypto or otherwise, is an unrealistic promise of substantial guaranteed returns.

"When values are really high, there are more scams associated with cryptocurrencies," said Mason Wilder of the Association of Certified Fraud Examiners, a professional organization.

If someone is offering an easy way to make big money in crypto, or is guaranteeing high returns, it should be approached with the same caution as any investment. Oftentimes, if an investing opportunity seems too good to be true, it is. Here are some tips to keep in mind:

• Look at investments that offer realistic returns and clear info about their operations
• Stay engaged with communities and forums that are knowledgeable about cryptocurrency, and keep an eye out for discussions on possible scams. Knowledge is your best defense.
• Check that the platforms you are using to manage cryptocurrency are complying with laws and regulation. Keep up to date on laws regarding crypto.

Tips to protect yourself from scams

Here are some common scams and tips to avoid them. These come from a variety of sources, including Wells Fargo, Chase Bank, BMO, Feedzai, a company that helps financial institutions manage their fraud and BioCatch, a company that works with banks to protecttheir customers from fraud and scams

• The “it” toy scam: Scammers target emotions and frazzled parents trying to get the hottest toy with fake links. Make sure you are interacting with a reputable retailer and not clicking on unsolicited emails, said Alvarez with Wells Fargo.
• Fake package notifications: Be careful of clicking on an unsolicited text or email pretending to be from a legitimate company to "track" your package or help with a "lost" package.
• Fake charities: Scammers know people are generous. Research any charity you plan to donate to, so you can ensure you are donating to a legitimate cause, according to Wells Fargo.
• Beware of gift card scams: Be careful of buying gift cards from third-party sites, said Chase Bank. Scammers will pre-save card details or sell expired cards. Don't answer unsolicited emails or text messages offering you a gift card; it could be a way to track your online activity.
• Watch for unsolicited “friendly” messages on social apps: Scammers first try to hook you by starting a friendly conversation and then asking for money once they earn your trust, said Chase Bank. Be careful of accepting requests from contacts you don't know and never send money.
• Deals that are too good to be true: Scammers will lure shoppers with deeply discounted prices or offers that are simply unbelievable, according to Feedzai. If a deal seems too good to be true, it probably is. Do your research and compare prices from different retailers before making a purchase.
• Double-check the website: Scammers often create fake websites that look just like legitimate online stores, according to Feedzai. Triple-check the URL web address for a slight variation in the spelling of a popular website. Look for a padlock icon on the address bar and check for "https" to indicate a secure connection.
• Use a secure payment method: Whenever possible, use a credit card for online purchases, said Feedzai. Credit cards offer more protection against fraud than debit cards or peer-to-peer payment apps.
• Be skeptical of product reviews and testimonials: Artificial intelligence can be used to create fake reviews and testimonials. Do your own research and look for reviews from trusted sources, said Feedzai. 

More: Scam losses worldwide this year are $1 trillion. How to protect yourself.

• Payment app scams: Scams involving payment apps run all year long, according to BioCatch, but the volume is expected to increase during the holiday season. Most of these scams start with a call from someone pretending to be your bank or credit card company, saying there has been fraud detected on your account. They'll try to get you to transfer the money to an account to "protect" it, but it's actually an account for the scammer.
• Beware of account takeovers: Monitor your accounts closely for any signs of unusual activity like unexpected orders, new shipping addresses, or account updates you didn't initiate, said BioCatch. Account takeover fraud typically involves unauthorized access to accounts to make purchases or transfer funds. 
• Stay away from public Wi-Fi when shopping: Fraudsters can exploit unsecured networks to access your sensitive data, according to BMO.

Tips to protect yourself from a romance scam

• Does the person's story elicit emotions of sympathy? Often, once the scammer has hooked the victim into being emotionally attached, then the stories looking for sympathy (and financial help) come out, Parisutham said.
• Person can't meet up? That's a red flag: Often scammers are not local and potentially not in the same country. So once questions of meeting up or getting on a video call are thwarted, that could be a sign, Parisutham said.
• Have a trusted circle of friends and family: People close to you can look at the relationship and situation from an objective lens instead of an emotional one to see if there are warning signs, Parisutham said.
• If you have been scammed out of money, be careful of "recovery scams." There's a secondary market of scammers who will try to help victims "recover" lost money. They get scammed a second time, West said.
• Find resources: The Better Business Bureau has a Scam Survivor Tool Kit that provides resources for scam victims.
• ◾ For more tips: Visa released some red flags and green flags for romance scams, including if something sounds too good to be true or someone is professing love too soon.