The Daily Telegraph - Saturday - Money
‘My £130k Bitcoin was fake’ £ 9.5BN
Cryptocurrency scams are on the rise and investors are being caught out, writes Sam Benstead
Bitcoin, the digital currency, is enjoying an extended spell in the limelight as its value rockets. But there is a dark side to its ascent. While it has made millionaires and rewarded many punters, scammers are using the hype to target people looking to capture a slice of what has been called “digital gold”.
Investing in cryptocurrencies carries a heightened risk of fraud and they are not covered by the Financial Services Compensation Scheme, which can protect assets up to £85,000.
Would-be investors are faced with a Wild West of little-known start-up companies fighting to be the number one exchange for trading and storing Bitcoin. This has created a perfect environment for scammers to create fake companies and lure unsuspecting crypto fans.
The threat has grown so large that the Financial Conduct Authority, the City watchdog, this month warned people to be wary when approached by companies that offered high returns from cryptocurrencies.
Earlier this year it banned the sale of investments that track the value of cryptocurrencies, known as “derivatives”, which it estimated would save consumers £53m.
One victim of cryptocurrency fraud was Terry Haddon, 88, from Bournemouth. Last summer he decided to invest in Bitcoin for the first time in an attempt to grow his investment portfolio to leave to his grandchildren and great-grandchildren.
Searching online for ways to invest in Bitcoin, he came across a broker called Link-Markets, which claimed to be based in Switzerland.
He deposited £ 20,000 with the outfit and then quickly doubled his stake. Mr Haddon was assigned a “licensed trader” for his account, who appeared to grow his money to £50,000 in a matter of weeks and then into £130,000. As his balance grew, he was entitled to more “expert” trading activity.
Mr Haddon then decided to withdraw half his stake, which he was told would incur a 20pc capital gains tax bill. He was asked to pay £13,000 to cover this, which he did, and was then asked for his bank details so that his remaining profit could be deposited. The scammer immediately withdrew £6,000 from his bank.
“I questioned several times what he was doing and was told to ‘shut up’. He then tried to access another account but was prevented by the password. No attempt was made to deposit my trading profits. After an argument he disconnected the telephone. I have heard nothing since and I have emailed several times,” said Mr Haddon.
His remaining £65,000 Bitcoin balance is still showing in his Link-Markets account. The website has changed address but is still active.
“No further trades had been made since the beginning of December and in all probability the balance shown is nonexistent. I am more than £50,000 out of pocket,” he said.
Action Fraud, the national centre for reporting scams, has warned consumers about sham cryptocurrency operations. A common fraud involved cold callers or social media adverts promising “get rich quick” investments in cryptocurrencies, it said.
Just as in Mr Haddon’s case, fraudsters will convince victims to sign up to cryptocurrency investment websites and give their personal details, according to Action Fraud.
“The victim will then make an initial minimum deposit, after which the fraudster will call them to persuade them to invest again in order to achieve a greater profit,” it said.
Action Fraud advised people always to assume that an investment opportunity was not real, even if it claimed to be connected to a well known company, as criminals could use the names of established brands or individuals to make their scams appear legitimate.
There are a number of regulated cryptocurrency exchanges in Britain, such as eToro and Coinbase, but deposits lack FSCS protection. On top of the elevated risk of scams when investors try to buy cryptocurrency, prices can be extremely volatile and the FCA has warned those who do invest to be prepared to lose all their money.
Action Fraud said prospective cryptocurrency investors should seek advice before they buy.