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- A U.S. state securities regulator is set to introduce measures to protect Americans from AI-driven digital asset fraud.
- Reports show a rise in crypto-related scams, especially targeting older Americans through social media and cryptocurrency ATMs.
- Regulators are working on a comprehensive strategy to combat these threats, including enforcement actions and public education.
A U.S. state securities regulator is preparing to implement new measures to safeguard retail investors from a surge in crypto-related fraud involving digital assets, particularly those powered by artificial intelligence. Claire McHenry, Deputy Director of the Securities Bureau at the Nebraska Department of Banking and Finance, spoke at an SEC Investor Advisory Committee meeting about the growing threats crypto investors face.
McHenry highlighted findings from the 2024 North American Securities Administrators Association (NASAA) Enforcement Report, which tracks fraud trends and state regulators’ enforcement actions. The report indicates a significant increase in digital asset-related scams, with bad actors exploiting AI to make fraudulent schemes more convincing.
According to NASAA, state securities regulators conducted nearly 9,000 active investigations in 2023, leading to over $333 million in monetary fines and restitution. A rising number of these cases involved cryptocurrency scams, including Ponzi schemes, unregistered securities sales, and misleading AI-driven investment promises.
Rise in Crypto ATM Scams as Fraudsters Leverage AI and Social Media
One of the key concerns regulators raise is the use of social media and cryptocurrency ATMs in fraudulent schemes. The report noted a 19% increase in investigations of online investment fraud, with scammers using platforms like Facebook and WhatsApp to target victims. So-called “pig butchering” scams—where fraudsters build relationships with victims before convincing them to invest in fake crypto ventures—have become more sophisticated with AI.
Cryptocurrency ATMs have also become a tool for scammers, particularly in romance and government impersonation scams. Victims are often instructed to withdraw large sums of money and deposit them into these machines. Unknowingly sending funds to fraudulent actors. The lack of regulatory oversight on these ATMs makes it difficult for authorities to track transactions and recover lost funds.
Crypto Scams Prey on Older Americans, Prompting Regulatory Response
McHenry emphasized that older investors are especially vulnerable, as they often lack the technological awareness to identify scams. She cited a case where a woman lost $10,000 through a cryptocurrency ATM scam. Believing she was making a legitimate investment. Similar scams have cost victims millions, prompting state regulators to push for tighter oversight.
To counter these growing threats. NASAA advocates for a “whole-of-government” approach involving collaboration between state and federal agencies, financial institutions, and tech companies. Efforts include increased public education on identifying scams, improved monitoring of AI-driven fraud, and stronger enforcement actions against perpetrators. With digital asset fraud evolving rapidly. Regulators stress the importance of staying ahead of scammers who continue to exploit new technologies to deceive investors.
Related Reading: Will Bitcoin (BTC) Hold $90K, or Is a Major Drop Coming?
