Key Takeaways:
NASAA president Claire McHenry will testify before the SEC on rising crypto scams and evolving fraud tactics.
AI-generated deepfakes and online manipulation make it increasingly difficult for victims to detect and avoid fraud.
US regulators and lawmakers push for stricter cryptocurrency ATM oversight and propose new limits to curb fraud and illicit transactions.
McHenry shuns victim-blaming in curbing rising fraud and stresses the need for supportive language to rebuild trust.
Claire McHenry, deputy director of the Nebraska Department of Banking and Finance (NDBF), is set to propose a new strategy to the U.S. Securities and Exchange Commission (SEC) to combat rising crypto scams. She emphasizes that using victim-blaming language, even unintentionally, can discourage people from reporting crypto scams.
Claire McHenry to Testify on Rising Crypto Scams
In a March 5 press release published by the U.S. SEC, Claire McHenry, who also serves as the president of the North American Securities Administrators Association (NASAA), will meet with the regulator’s Investor Advisory Committee on March 6, 2025.
McHenry will testify before the committee about the alarming rise in crypto scams and the growing use of artificial intelligence (AI), social media, and cryptocurrency ATMs by fraudsters to exploit retail investors across the country.
She aims to highlight how these evolving tactics are making it easier for scammers to deceive and manipulate victims and calls for stronger regulatory measures to combat the threat.
NASAA Report Highlights Growing Fraud Concerns
A recent NASAA report buttresses the urgency of the issue, revealing that state securities regulators conducted 8,768 active investigations in 2024, with digital assets being the most frequently cited product in fraud cases.
This surge in crypto scams coincides with a high-profile conviction in Montana, where a scammer known as Randall Rule was found guilty of conspiracy and money laundering linked to cryptocurrency fraud, including romance scams. His schemes drained nearly $2.5 million from unsuspecting victims.
McHenry noted that fraudsters are increasingly using social media and internet-based solicitations to lure investors.
While financial firms also use these platforms for legitimate purposes, bad actors manipulate them to fabricate investment opportunities and build trust with their targets.
The NASAA report revealed a 19% rise in investigations and a 12% increase in enforcement actions related to social media and online investment solicitations. One of the most troubling trends is the prevalence of relationship scams, commonly referred to as pig butchering.
Scammers spend weeks or even months gaining the trust of their targets, making it difficult for victims to recognize they are being defrauded until major financial losses occur.
AI Washing and Deepfakes Aids Fraudulent Investment
McHenry also highlighted the role of AI in these schemes. One major tactic is AI washing, where scammers make exaggerated or false claims about using AI to improve investment strategies..
As AI technology advances, regulators must refine their educational tools to counteract evolving scams. Traditional advice, such as asking for video calls or phone verification, is becoming ineffective due to the rise of deepfake technology.
AI deepfake is a technology that uses artificial intelligence to create realistic but fake audio, video, or images, often mimicking real people to deceive or manipulate others.
Its use was demonstrated in a case from June 2024, where a scammer used deepfake video to manipulate an OKX user’s account settings, resulting in the loss of over $2 million in crypto assets within 24 hours.
Furthermore, data revealed that AI-driven scams contributed to at least $9.9 billion in crypto fraud in 2024, marking one of the most significant financial crimes of the year.
Lawmakers Push for Crypto ATM Regulations
The NASAA president also mentioned that cryptocurrency ATMs play a major role in these scams. Although these machines are commonly associated with legitimate transactions, scammers exploit them to facilitate fraudulent schemes.
She explained that scammers often instruct victims to withdraw large sums of cash and deposit them into cryptocurrency ATMs located in malls, gas stations, and private businesses.
Once converted into cryptocurrency, the funds are transferred to accounts controlled by the scammers, making recovery nearly impossible.
Lawmakers are starting to take notice. On February 25, 2025, Illinois Senator Dick Durbin introduced the Crypto ATM Fraud Prevention Act to address growing concerns about fraud and illicit activities tied to these machines.
Following this, over 1,200 cryptocurrency ATMs across the U.S. mysteriously went offline during the first weekend of March. If passed, the act would limit new users to $2,000 in daily transactions and impose a two-week waiting period for withdrawals exceeding $10,000.
Strengthening Collaboration to Combat Crypto Scams
McHenry called for a collaborative effort to combat crypto scams effectively. NASAA recently released its federal policy agenda for the 119th Congress, recognizing investment crypto scams as a growing threat to public safety, the economy, and the financial system.
NASAA has also partnered with the SEC, Commodity Futures Trading Commission (CFTC), Financial Industry Regulatory Authority (FINRA), and other regulators to educate investors and issue warnings about relationship scams and AI-driven fraud.
These efforts aim to provide individuals with a reliable point of contact who can be notified in case of suspicious account activity.
Frequently Asked Questions (FAQs)
Cryptocurrency ATMs provide scammers with an easy way to convert stolen funds into untraceable crypto assets. Unlike traditional bank transactions, these machines require minimal verification, allowing fraudsters to quickly move funds without triggering red flags.
Scammers create fake profiles, pose as financial experts, and engage in long-term conversations to establish credibility. They often share manipulated success stories, fake investment returns, and AI-generated testimonials to convince victims to invest.
Scammers often use fear, urgency, and social pressure to push victims into making rushed financial decisions. They may pretend to offer “limited-time” investment opportunities or create fake emergencies that pressure individuals into transferring funds quickly.
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