Inventory of Common Scams in the Cryptocurrency Field

Common Scams in Cryptocurrency

Author: Lawyer Sun Yujie

Recently, an old friend who has been in the cryptocurrency industry for many years consulted Lawyer Mankun. He was scammed out of 50,000 Tether (USDT) on a certain exchange!

The situation is roughly as follows: he sold his Tether (USDT) on a well-known overseas cryptocurrency derivatives trading platform. The buyer claimed to have a Hong Kong account and could only make payment in Hong Kong dollars, so he asked my friend to provide a Hong Kong bank account. Without much thought, my friend sent his Hong Kong bank account to the buyer. After a while, he received a notification of Hong Kong dollar deposit.

Thinking that the money had been deposited, my friend transferred his Tether (USDT) to the address provided by the buyer without hesitation. However, not long after, he found out that the deposited Hong Kong dollars had been withdrawn. It was at this moment that my friend realized he had been scammed.

• LianGuai Morning News | G20 leaders will discuss advancing the proposed roadmap for cryptocurrency regulation in October.
• Artificial Intelligence and Work Automation
• Jay Chou’s ‘Fantasy Music Universe’ is here. Would you buy the 30 yuan digital collectible key?

Similar scams are actually quite common. The latest case announced by Shanghai Huaxin Police Station shows that a company executive named Yang received a transfer voucher for 180,000 foreign currency from a so-called “customer”. Believing that the 180,000 had been deposited, he agreed to pay the remaining amount on behalf of the customer and transferred 100,000 to the designated account. It was not until he discovered that the foreign exchange payment had been withdrawn that he realized he had been deceived.

01. What are the common tricks in check scams?

In Hong Kong, interbank remittances in Hong Kong dollars can be made using checks. A check is a note issued by the payer, entrusted to a bank or other financial institution to handle check deposit business, which unconditionally pays a specified amount to the payee or holder of the check upon presentation.

However, the deposit of a check does not mean the money is available immediately. There is a 24-hour clearing period between deposit and availability. During this 24-hour period, the recipient will receive two separate bank text messages: the first message informs that the funds have been deposited, but these funds are only “displayed as a number in the recipient’s account” (also known as “pending”), and do not actually belong to the recipient yet. The second message is a reminder that the funds will be available the next day (i.e., 24 hours after the first deposit message). Only at this time will the funds become actual usable money.

It should be emphasized: according to the operating characteristics of the Hong Kong financial system, the payer can cancel a check remittance at any time during the clearing period, and even if the payer does not cancel the check, the check may fail to be credited due to insufficient funds, inconsistent signature, or other factors that do not meet the conditions for the check to be honored by the bank (also known as “bouncing”).

In the cases announced by the police and the incidents encountered by my friend, the scammers took advantage of the fact that many people, especially those from the mainland, are unfamiliar with the operation of the Hong Kong check system to carry out their fraud.

There are three popular methods of fraud involving overseas check payments in recent years: 1) revoking the check after it is issued, 2) bouncing the check, and 3) deceiving to obtain the difference in payment.

1. Revoking the check after it is issued. Similar to the tactics used in the scams mentioned above, scammers take advantage of the time difference. They make the recipient believe that they have received the transfer, but in reality, the funds have not arrived in the account. After the recipient pays with virtual currency, the scammers quickly withdraw the funds.

2. Bouncing the check, like a bad check. When a check is deposited, most banks have a freezing period (recovery period) that can last up to six months. If the check bounces during this period, not only will the funds be returned, but also a fee will be charged. This type of scam is more common in foreign trade transactions.

3. Deceiving to obtain the difference in payment. This method is even more malicious than the previous two. Scammers intentionally overpay when issuing the check. Then, when the payee mistakenly believes they have received the payment, the scammer will politely ask them to refund the difference, claiming that they made an accidental overpayment.

02. Check scams targeting virtual currency transactions

Scammers have the same learning ability and diligence as any successful professional in the workplace. In a new round of scams, scammers are not only targeting physical enterprises but also the emerging market of virtual currency transactions.

Here, scammers usually pose as buyers and engage in simple communication with virtual currency sellers matched by the system on the trading platform, gaining initial trust. Because check payment scams require a local account in Hong Kong to complete, they will then ask the seller to provide a local Hong Kong account. They exploit the loophole that many, especially mainland Chinese, are not familiar with the operation of Hong Kong’s 24-hour check clearing system. They request a “bill of exchange” for the transaction amount to be deposited into the Hong Kong account they provided. After the seller receives the first notification of the deposit, the scammer urgently urges the seller to transfer the virtual currency to their designated address. Once they receive the virtual currency, they use various excuses such as mismatched signatures or incorrect amounts to revoke the payment made by check.

Therefore, although the above scams may seem like old tricks from many years ago, they are still quite successful in new emerging industries. At the same time, scammers protect themselves well and are usually not Hong Kong residents. After being scammed, it is extremely difficult to recover the funds.

03. Tips from Lawyer Manquan

A healthy and orderly market development relies on legal protection, and we also need to raise our awareness of prevention.

1. Stay vigilant in daily life. Listen and observe more, familiarize yourself with common fraudulent methods, and remain cautious during transactions. For example, follow our WeChat public account at Lawyer Manquan to learn about various scams in the cryptocurrency industry.

2. Pay attention to buyer information. When trading virtual currencies on overseas exchanges, pay attention to the number of the seller’s historical trading orders, the relevant evaluations of previous buyers, and the certification status of the platform. It is preferred to use cash settlement and other methods. Be sure to check the receipt of funds before releasing the coins. If the buyer insists on choosing the check remittance method, the transaction time should be extended until the check is truly cashed, and the available amount in the bank should be used as the basis.

3. Contact customer service to freeze the account and report in a timely manner. If you unfortunately encounter such a scam, don’t panic. Contact the customer service personnel of the exchange as soon as possible, organize the relevant written materials, and apply to connect with the counterparty’s trading account. If the amount of funds lost is large, you can also entrust a lawyer to assist in reporting to the public security organs.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!