Explores insider trading in crypto, describes a case study of a crypto scam, and provides insights into the tactics used by scammers.

This article provides a detailed overview of insider trading in the cryptocurrency world and how it can potentially lead to fraudulent activities.

The story below explores several aspects including the definition of crypto insider trading, a real-world example of a scam, the role of crypto trading orders, the human cost of these scams, the mystery of crypto exchanges, the power of detailed backstories, the role of social engineers, tactics used by fraudsters, and the rise of cryptocurrency scams.

The purpose of this article aims to raise awareness and promote understanding of these complex issues in the crypto world, ultimately fostering safer trading environments.

What is Insider Trading in Crypto?

Insider trading in the cryptocurrency world involves the use of non-public, potentially price-sensitive information to make trades before others have the same information. Just like in traditional securities markets, insider trading in crypto is considered unethical and potentially illegal.

The term can include information about a cryptocurrency being listed on an exchange, upcoming partnerships, or other significant events that could impact a cryptocurrency’s price once the information is made public.

The lack of regulation and oversight in the crypto market makes it more susceptible to such practices. However, authorities are starting to crack down on such activities to ensure fair trading practices in the crypto world.

Lured into Scheme

Tom, a 48-year-old software engineering director living near Silicon Valley, fell victim to a sophisticated investment scam orchestrated by an individual known only to him as “Wendy.”

Engaging in seemingly genuine conversations, Wendy convinced Tom to invest in a scheme that appeared to involve insider trading. Tom was instructed to transfer money to a cryptocurrency exchange called GateEx, where he converted his cash into ETH and USDT, a stablecoin issued by Tether.

Tom ended up losing nearly $2 million in this fraudulent scheme, which ultimately revealed itself when he was unable to withdraw his funds.

The scam demonstrates the insidious methods employed by fraudsters, who manipulate their victims using well-crafted narratives and seemingly legitimate investment opportunities.

Crypto Trading Orders

Tom was duped into crypto trading by a person named Wendy, who claimed to have access to inside trading data at GateEx. Leveraging the trading orders of high-volume traders, known as ‘whales‘, she convinced Tom that he could capitalize on tokens likely to surge in value.

Trusting Wendy’s insider knowledge, Tom invested an unspecified amount into these tokens. However, when he attempted to withdraw his funds after several months, he found it impossible.

The scam took a drastic turn when a person purporting to be a GateEx security representative reached out to Tom, accusing him of data theft. Tom was then slapped with a massive fee of $200,000 for account scrutiny. But the demands did not stop there.

After Tom paid the initial fee, he was accused of money laundering due to his money transfers to Hong Kong. Tom had wired money to GateEx accounts in Hong Kong and once to China.

The representative claimed FinCEN was investigating Tom’s account. To avoid a “huge fine”, Tom was told to pay another GateEx fee. GateEx threatened to freeze Tom’s bank accounts and claimed damage to his credit score unless he paid more to unlock his accounts.

Legions of Coerced Workers

These scams, known as pig butchering, have a devastating human cost beyond their financial toll. They often involve large, organized crime groups coercing vast numbers of workers into participating in the scam.

These workers are typically confined in secured compounds, where they are made to scour the internet for potential victims. The United Nations estimates that over 100,000 people are held in these conditions, many of whom believed they were entering legitimate call centre jobs.

Originating in China and Southeast Asia, these scams have now spread globally, highlighting the urgent need for international cooperation in tackling this issue.

Mysterious Exchange

Mysterious cryptocurrency exchanges are often at the core of many scams, such as the “pig butchering” fraud. Little is known about these exchanges, which add to their mystery and danger. An example is GateEx.

The company does not disclose its location, although it claims to have offices in various global cities such as San Francisco, Malta, Hong Kong, Singapore, Japan, and South Korea.

However, no official filings for GateEx were found in the corporate registries of these jurisdictions. Furthermore, the exchange claims to have more than 100 employees, but none appear on LinkedIn.

The exchange’s active traders also seem absent from online chat rooms or social media platforms popular with crypto traders.

Investigations have traced funds from wallets linked to these different exchanges, showing that proceeds are laundered through a complex series of transactions and mixed with funds from other scam victims.

Detailed backstories

The scammers involved in these schemes employ highly detailed backstories to make a connection with their victims. They typically portray themselves as women who were born in China and moved to the US or Singapore.

Often, they claim to have suffered a significant personal tragedy, such as a widowhood or abusive relationships that ended in divorce.

These women then present a narrative of overcoming adversity, usually with the help of a wealthy family member who offers them a job at a data processing company with access to internal restricted data of a cryptocurrency platform.

These elaborate and emotional stories are all part of the scam, designed to build trust and manipulate the victims into participating in the fraudulent investment schemes.

Social Engineers

Social engineers are experts at manipulating people into providing confidential information or performing certain actions that may be detrimental. Leveraging psychological tricks, they exploit human vulnerabilities to circumvent security measures.

In the context of the provided story, these social engineers are part of sophisticated scam operations. They use well-crafted scripts based on countless victims’ experiences to convincingly impersonate genuine contacts, often using extensive backstories to build trust.

Their operations are industrialized to the point where different people handle different parts of the scam, making it difficult for victims to detect the deception.

Their skills reflect a high degree of understanding of human psychology and social dynamics, which they use unethically to execute scams and fraud.

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Account ‘Under Review’

The victims found that the transaction status on their account was stuck “under review,” indicating that the process of withdrawal was not being allowed to progress. The thereof often led to multiple futile attempts to contact customer service.

The “under review” status is a common tactic used by fraudulent platforms to delay or prevent users from retrieving their funds, often leaving them in a state of financial loss and emotional distress.

In March, Tom’s account was put ‘under review’ after a large payment and late fee of $120,000. His withdrawal attempt was stalled and no reason or timeline was provided by the financial platform.

Despite reaching out to customer service, Tom received no assistance, heightening his frustration. He felt isolated and unsupported.

Reflecting on his investment decision, Tom admitted his regret: “I was stupid to believe that it was a good investment.” His negative experience left him feeling exploited.

This incident is part of a larger trend in the crypto world, where inside information is often used in scams. Tom saw this as an opportunity in the volatile crypto market.

Before participating, Tom asked ‘Wendy’, another party, about the scheme’s legality. She advised him to keep it a secret, a red flag about its questionable legality.

Suspect White Paper

The white paper used by GateEx to launch its service raises suspicions. It appears to be identical to the one used by Wazir X, an Indian crypto exchange, with the only difference being the replacement of the name “Wazir X” with “GateEx”.

This suggests that someone may have merely used the “find and replace” function to create GateEx’s white paper. Wazir X’s founder, Nischal Shetty, has confirmed that his venture has no connection to GateEx.

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Rise in Cryptocurrency Scams and Other Common Fraud Tactics

In the U.K., Lloyds Banking Group noted a 23% rise in cryptocurrency scams in 2023 compared to the same duration in 2022.

While the initial half of 2023 saw a decrease in such scams, there was a notable surge in the third quarter, as indicated in a report by the bug bounty platform, Immunefi.

Despite the novelty of cryptocurrency, fraudsters resort to traditional tactics for their thefts. Here are several typical cryptocurrency frauds to be cautious of.

Bitcoin Investment Schemes	Scammers pose as investment managers promising high returns. They take upfront fees and sometimes steal personal identification information.
Rug Pull Scams	Scammers hype a new project or coin, and after receiving funds, they disappear, leaving investors with a valueless investment.
Romance Scams	Scammers form online relationships and convince the other party to transfer cryptocurrency to them, then disappear.
Phishing Scams	Scammers send emails with malicious links to gather personal details, including cryptocurrency wallet keys.
Man-in-the-middle Attacks	Scammers intercept personal information sent over public networks, including cryptocurrency account details.
Social Media Cryptocurrency Giveaway Scams	Fraudulent posts promise bitcoin giveaways. Users end up on fraudulent sites asking for payment verification and lose money.
Ponzi Schemes	Scammers pay old investors with new ones’ money, promising huge profits with little risk.
Fake Cryptocurrency Exchanges	Scammers lure investors with great exchange rates, but there’s no real exchange, and investors lose their money.
Employment Offers and Fraudulent Employees	Scammers pose as recruiters requiring cryptocurrency payment for job training or as job seekers to gain access to cryptocurrency accounts.
Flash Loan Attack	Attackers borrow money and manipulate pricing on a decentralized finance platform to make a profit.
AI Scams	Attackers use AI chatbots to promote fake tokens or manipulate proof of work. They may also use deepfakes of celebrities endorsing cryptocurrency projects.

Readmore: MicroStrategy X Account Hacked, $500k Stolen In Phishing Scam

Conclusion – The Risks and Challenges in Cryptocurrency

While offering many opportunities, is also fraught with risks, including scams and insider trading. The lack of regulation and oversight in this domain can make it a fertile ground for unethical and potentially illegal activities.

This case is a sobering reminder for investors and participants to approach crypto trading with a high degree of caution, diligence, and understanding. The story of Tom and the fraudulent scheme he fell victim to illustrates the sophisticated and insidious methods employed by fraudsters.

These scams often involve social engineering, detailed backstories, and the use of mysterious exchanges to exploit their victims. The rise in such scams highlights the urgent need for increased regulation, awareness, and international cooperation to tackle these issues.

Despite these challenges, the crypto market continues to evolve and grow, underscoring the importance of navigating it with informed decisions and sound judgment.

FAQs

1. What is crypto trading scam?

A crypto trading scam involves fraudulent activities in the cryptocurrency market. These scams can take many forms, such as insider trading, where non-public information is used for trading, or schemes where victims are lured into investing in certain tokens based on false claims.

Crypto trading scams can also involve fraudulent exchanges that do not really exist or that operate in a mysterious and unregulated manner. Scammers often use sophisticated tactics, including social engineering and elaborate narratives, to manipulate their victims.

Once the victims become suspicious and attempt to withdraw their funds, they often find that their transactions are stuck “under review,” preventing them from retrieving their money.

2. Is there such thing as insider trading for crypto?  

Yes, insider trading can occur in the world of cryptocurrencies. It involves using non-public, potentially price-sensitive information to execute trades before others can access the same information.

The term can include details about a cryptocurrency being listed on an exchange, upcoming partnerships, or other significant events that could impact a cryptocurrency’s price once public.

While it’s considered unethical and potentially illegal, as in traditional securities markets, the lack of regulation and oversight in the crypto market can make it more susceptible to such practices.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.