By Evan Spicer
Director of Cryptocurrency Investigations
MyChargeBack
Cryptocurrency has held a prominent place in the headlines since the blockchain revolution during the pandemic. Although few can doubt the fact that cryptocurrency has permanently changed the way we think about and use money, with progress comes problems – including crypto scams.
Many of the biggest crypto scams of 2022 may not seem like bitcoin scams at all. They look like financial collapses. Businesses indeed go under all the time, but when they are in charge of handling clients’ money, as in the case of crypto trading scams, it’s reasonable to suspect something dodgy.
After major crypto exchanges and companies collapse, more often than not, we discover that someone benefits. Investigators may notice sudden and suspiciously large withdrawals that indicate fraudsters wanting to cash out while they still can.
Sometimes companies fall apart because of actual financial headwinds. However, especially in the crypto sector, an investigation is always necessary to ensure there wasn’t foul play.
The biggest crypto scams of 2022 reveal the mechanisms through which cyber criminals make off with money in what seems to be a regular bankruptcy. It wasn’t just first-time investors who fell for these schemes, but sophisticated investors who felt sure they were entrusting their funds to a legitimate entity.
What Were the Biggest Crypto Scams of 2022?
There were of course hundreds of crypto scams that could have made this list, but we observed and listed (in reverse order) the five most comprehensive and damaging crypto scams of 2022.
Axie Infinity
Crypto currency scams aren’t a game, but they can certainly play them. Axie Infinity NFT players lost 173,600 ether and $25.5 million USDC – a total of $625 million. These funds were stolen by Lazarus and APT38 – hackers associated with the North Korean government.
Although Axie Infinity claimed innocence and the fraud was committed by outside hackers, crypto users became increasingly worried even about legitimate crypto companies. Even if an NFT game is the real thing, it can still be targeted by hackers.
Terra’s UST Algorithmic Stablecoin
The fall of Terra’s UST (LUNA1-USD) sent shockwaves through the crypto sector, which lost $40 billion in market value. These seemed like nothing more than a major financial crisis in the crypto sector, however, under further investigation, a crypto trading scam was not so far under the surface.
Investigations of Do Kwan, the founder of TerraForm Labs, which developed TerraUSD, revealed that he was running multiple crypto trading scams and stole funds from customers by using misleading information. Currently, authorities are chasing down Do Kwan, who is believed to be hiding in Serbia.
Three Arrows Capital
Three Arrows Capital is a crypto hedge fund that appeared to be a casualty of the Terra UST collapse, but instead, seems to have been involved in dishonest dealings of its own. Clients of Three Arrows Capital lost big in the Terra debacle, mainly because of smart contracts that wouldn’t allow them to sell their holdings even as the value collapsed.
As a result, the founders of Three Arrows Capital defaulted on a $650 million loan to Voyager Digital. When a U.S. bankruptcy judge tried to contact Three Arrows Capital owners Su Zhu and Kyle Davies about this debt, they were nowhere to be found. Apparently, they made off with these assets which authorities are trying to locate to pay off investors.
Celsius
Yet another casualty of the Luna UST Stablecoin collapse was crypto lender Celsius, which declared bankruptcy. After filing for Chapter 11 protection, Celsius froze client accounts so they couldn’t make withdrawals. This is often a tactic used by crypto scams, although Celsius claimed it was necessary because of their insolvency.
However, investigators later discovered that Celsius founder Alex Mashinsky withdrew $10 million for himself before freezing client funds. This is right out of the playbook of crypto currency scams, even though Mashinsky’s excuse was the money was taken to pay taxes.
FTX
The biggest crypto scam of 2022 was undoubtedly the FTX collapse. This case is important because of the amount of influence FTX and its founder, Sam Bankman-Fried, had on politicians and world leaders, the number of losses involved and the domino effect that is still being felt as crypto companies go under due to losses.
Sam Bankman Fried was shuffling funds between FTX platform and Alameda Research, a crypto fund. He was using his own FTX tokens as collateral for loans and was misusing client funds. Alameda and FTX have $5.1 billion in liabilities and Sam Bankman-Fried has been extradited from the Bahamas to stand trial in the U.S. for fraud.
Is Crypto Recovery Possible?
It’s clear from these cases that anyone can be taken in by crypto scams. Many of them seem like real crypto lenders, exchanges and brokers. Often they aren’t exposed as bitcoin scams until after the fact.
Many of these cases are still under investigation. In some cases, it isn’t known where the crypto scammers are. In other cases, such as FTX, we know who did it and how it happened but it will take some time to find out where the money went and how to compensate victims.
With experts on your side, crypto recovery is possible. However, it takes patience and expertise to make a case convincing enough to encourage action. MyChargeBack experts will consult with you, launch an investigation and make a compelling case that will improve your chances of crypto recovery success.
Have You Lost Money to a Crypto Scam? Talk to MyChargeBack Professionals Today
If you have lost money to financial fraud, talk to the MyChargeBack team. Our investigations will provide evidence to bolster your claim. Our investigation reports are essential for tracking down your funds and getting you started on the road to fund recovery.
