Federal Trade Commission and U.S. Senators Push for Social Media Fraud Controls

What do the newest headphones, the trendiest fashion craze and the latest hype coin have in common? All are finding their next buyer on social media. According to a June report from the United States Federal Trade Commission (FTC), over $1 billion was lost to crypto scams on social media from January 1, 2021 through March, 31, 2022, and the blame is being laid at the feet of major social platforms such as Instagram, Facebook, WhatsApp and Telegram.

That amount is five times more than 2019 and six times the value of scams perpetrated in all of 2018. From January 1, 2021 through March 31, 2022, the FTC fielded reports for over $575 million in cryptocurrency scams stemming from “bogus investment opportunities.” In only the first quarter of 2022, a reported 46,000 people were victims of cryptocurrency scams.

Senators demanding accountability

Cryptocurrency messaging can be hard to avoid with some of the world’s most famous influencers, like Kim Kardashian, promoting cryptocurrency on their social media platforms—the business mogul was later sued over the alleged “pump and dump” scheme. Some U.S. senators are trying to combat this trend by demanding more information from Facebook’s parent company, Meta Platforms Inc., about its efforts to combat cryptocurrency fraud, citing warnings from federal regulators that such scams are booming across major platforms like Instagram and WhatsApp. 

“Based on recent reports of scams on other social media platforms and apps, we are concerned that Meta provides a breeding ground for cryptocurrency fraud that causes significant harm to consumers,” the senators, led by Sen. Robert Menendez (D-N.J.), wrote in a letter.  The letter cites that from January 1, 2021 through March 31, 2022, 49% of fraud reports to the FTC involving cryptocurrency specified that the scam originated on social media. Additionally, the letter asked Meta to provide a detailed explanation of its policies for dealing with crypto scams, what steps it takes to assist victims of fraud and law enforcement pursuing cases, and whether it takes any proactive measures against fraud all by October 24, 2022.

The topic is a main focus for the FTC’s newest commissioner, Alvaro Bedoya. Bedoya stresses that the frauds occurring on these social media platforms are not only affecting consumers, but that non-English speakers are disproportionately harmed because platforms are focused on monitoring and reporting fraud primarily in English. Bedoya said in his first address at the National Association of Attorneys General Presidential Summit, “... platforms have repeatedly refused to answer questions from Congress on how many staff they employ to monitor for fraud in languages other than English. That is not okay. That must change.”

The FTC said a surge in cases resulted in hundreds of millions of dollars lost for consumers, and crypto has become the most common form of payment used by scammers on social media. In June, the agency released data showing that nearly half the people who reported losing money via a crypto scam since 2021 said it originated on a social media platform.

Influencers and bot accounts

Spam bots and account impersonation are well-known problems on social media, particularly on Twitter. The FTC recently reported that over a seven-month period from 2020 through 2021, customers lost about $2 million through crypto scams advertised by fake Elon Musk accounts—potentially aided by the fact that many people simply don't understand blockchain technology. With the belief in influencers’ opinions, it can be easy for fraudsters to make fake accounts impersonating celebrities to make quick cash, or coin, from promoting fraudulent cryptocurrency investment opportunities.

While many scams prey on vulnerable groups, social-facing crypto scams appeal to the tech-savvy younger generations. People ages 20 to 49 were more than three times as likely as older age groups to have reported losing cryptocurrency to a scammer.

The Federal Trade Commission detailed a few ways to steer clear of cryptocurrency scams:

• Scammers often guarantee profits or big returns. Crypto investments are never guaranteed to make money, let alone big money.
• No one legitimate will require you to buy cryptocurrency to sort out a problem or protect your return. That’s a scam.
• Never mix online dating with investment advice. If a new love interest shows you how to invest in crypto or asks you to send them cryptocurrency, that’s a scam.

When Bloomberg asked Twitter, Discord and Telegram officials about these issues, they all said that they take action to mitigate fraud on their platforms and allow users to report suspicious activity. Officials at Facebook and Instagram's parent company, Meta Platforms Inc., declined to comment on crypto scams happening across their social media networks.