The “Boiler Room” scam in cryptocurrency investments

Notes characteristic of the usual operation in scams committed by a “fake advisor” to small cryptocurrency investors.

In the midst of the cryptocurrency and NFT boom, the proliferation of exchange platforms and the internationalisation of companies providing investment services, anyone can become an investor and access all kinds of markets with the only help of a mobile device and without the need for large sums of money.

This context has opened up a new and tempting field for fraudsters, who find potential victims in small, novice investors. We refer to the scam known as “the fake advisor” or “boiler room”.

The perpetrators of these crimes usually contact their victims through digital means such as websites, blogs, apps, etc. They present themselves as companies specialising in financial advice on all kinds of financial products ranging from options and futures to cryptocurrencies.

They tell their victims that they have to go through a KYC (Know your Client) process and ask for their personal data. They usually have an elaborate website where the victim creates a user account and even gets to see live quotes for different securities. Thus, believing that the page is real and thinking that they are depositing money on the platform to be able to operate on the stock market, they start to move funds towards it.

One of the common practices in this type of scam is that the fake advisors induce the victim to convert their legal tender (euros, dollars, etc.) to cryptocurrencies such as Bitcoins or Ethereum using an exchange (platforms for buying and selling cryptocurrencies) such as Binance or Coinbase. Once the conversion has been made, they provide the victim with an electronic wallet address (wallets) of the supposed platform so that the victim can transfer them, under the deception that the investment will be carried out from the platform’s wallet.

It is common for “fake advisors” to convince the victim to allow them to remotely control their computer using applications such as Any Desk, and take advantage of this moment to steal their passwords and other data, as well as, sometimes, to install malicious software on the victim’s computer or electronic device.

In this way, the victim believes that he or she is depositing money on the investment platform, when in reality, the cryptocurrencies arrive in the wallet controlled by the fraudster, are divided into small portions and spread over hundreds of wallets in succession to make it difficult to trace them. In short, it is a process of hiding cryptocurrencies to make them difficult to locate and recover.

But the victim is initially completely unaware that his or her cryptocurrencies are already out of reach, because the platform created by the “fake advisors” continues to show the balance of the funds deposited. Moreover, during the first stage of the scam, the victim can watch the purchases and sales of securities made by the so-called advisors and see how his or her profit increases dramatically. It is then that the “fake advisors” recommend investing more money as “the market is in optimal conditions”. In some cases, the victim, believing that he has discovered the goose that lays the golden eggs, invests a large part or all of his savings and even invites people around him to invest with him.

In the second phase of the scam, an attempt is made to put the victim in a situation of anxiety in order to induce him to pay in more money. Sometimes the “fake advisors” will tell him that his investment has collapsed and that he has to make new deposits. At other times, when you try to withdraw some of the money, they will argue that you have to regularise your tax situation by paying certain amounts of money at the risk of serious penalties. Sometimes you will even be told that money has been lent to you to cover overdrafts, so you must pay off the debt before you can withdraw any money. This distressing situation can lead victims to borrow money from family members or banks in the firm belief that they will recover a much larger amount.

Often, when the victim becomes aware of the deception, a third company or group, apparently unrelated to the “fake advisor”, appears, posing as a sort of regulatory or supervisory body in charge of ensuring security in the international market, and offers its services to the victim in order to recover his or her money. Of course, he or she will first ask you to pay a fee for his or her services. It goes without saying that once the payment has been made, the entity disappears without providing any service.

Fraudsters often use names of entities or organisations that exist in reality, so when a potential victim searches for them in the official CNMV registers, they are found as registered investment service providers. In addition, they do not hesitate to provide their victim with falsified documentation consolidating their appearance of authenticity.

For preventive purposes, extreme caution should be exercised and the investment platform and the website hosting it should be investigated. Elements such as the date of creation of the website, whether it appears in generic search engines, or even the information published about the entity that has registered the domain are useful clues to assess whether or not it is a scam. It may also be useful to look at which company is listed as responsible in the privacy policies or general data terms and conditions.

In addition, it should be borne in mind that any company providing investment services, such as the administration and custody of financial instruments, currency exchange, advice or discretionary portfolio management, must be registered with the CNMV and submit its clients to the so-called suitability or convenience tests (depending on the service provided) since the entry into force of the MiFID regulations. These companies are subject to strict controls which, in short, aim to prevent inexperienced investors from carrying out transactions with financial products whose nature and risks they do not understand.

Once a scam has taken place, or if you are in doubt whether or not you are facing a scam, it is advisable to consult professionals and stop “investing” immediately. It is advisable to save all available information and any data that could be used to identify those responsible, as well as to change all passwords, ensure that there is no malware on our devices and report the facts to the authorities.

The legal department of AddVANTE can provide the advice required by any person or company that has been the victim of this type of deception, offering you a comprehensive and coordinated response from the different legal and technological areas of the firm.