A cryptocurrency scam that used the Coinbase Wallet led to $66.3 million in lost crypto – The Washington Post

Jenkins isn’t some greenhorn fresh to the world of money and crime. In fact, if anyone shouldn’t have been duped in a scam, it’s him — a 57-year-old retired cop from outside Atlantic City, who prides himself on his law enforcement wiles. He even used to direct security at a casino, his eagle eyes spotting the shady types who would take the house for a ride.

As cryptocurrency investment in the United States skyrockets, Jenkins’s story is no longer a rarity. Scams are rapidly multiplying in the lightly regulated province of crypto, experts say, each boosted wallet and disappeared dollar underscoring just how mainstream the thievery has become. The Federal Trade Commission estimates that Americans lost $750 million to crypto scams in 2021, and the number could rise this year.

No one agency seems to have latched onto the scam that snatched Jenkins’s money, even though a Washington Post analysis of the blockchain records available suggests it is truly of staggering dimensions — with likely more than 5,000 victims in multiple states and $66.3 million stolen since August. The FBI did not respond to a request for comment.

Victims interviewed by The Post say, despite numerous attempts to alert law enforcement, they’ve yet to be contacted by authorities, leading them to believe no agency is even aware of the scam, let alone investigating it. Instead, they have organized on their own, in Reddit and Facebook groups, to commiserate and strategize.

Meanwhile, regulators and Congress have yet to develop a robust set of rules that would impose strict standards of behavior and enforcement. And the companies involved — in this case, the large crypto platform Coinbase and the currency Tether — have basically told the victims “buyer beware.”

“This is really, really hard because crypto is so thinly regulated and folks are used to picking up the phone and calling 911,” said Joe Rotunda, the enforcement director of the Texas State Securities Board, which investigates investment scams. “Oftentimes, the law enforcement agencies deal with violent crimes or street crimes. They simply don’t have the resources necessary to prosecute a case like this and don’t know where to turn.”

He cited “commodity-pool” scams from late 19th century that had Americans sending their money by mail to invest in “can’t-miss” wheat futures. Those scams also took place “at the frontier of economic innovation,” he said, where criminals find they can exploit the combination of consumer enthusiasm and government confusion.

The scam that ensnared Jenkins unfolded on an app made by the cryptocurrency exchange Coinbase. It involved a niche crypto area known as “liquidity mining” and took the form of what activists have come to call “pig-butchering” — because the victim’s wallet is fattened before the slaughter.

Jenkins was skeptical. He had worked for the New Jersey State Police protecting the State House in Trenton and for a time served as director of security at Resorts World, a casino in Queens, N.Y., about 120 miles north of Absecon. He was used to spotting all kinds of scams, and this smelled like one.

After withdrawing his money from the account and then depositing it again over the next few days — to test that he really did still control the funds — he began steadily adding to it. If he worked his way up to $15,000, Alice had told him, bonuses would kick in that would net him 15 percent monthly returns — enabling him to hit his $2,000 earnings target.

After four weeks, Jenkins had invested $15,000 in the supposed mining operation. The Post could verify the dates and amounts of his investments because, like almost anything involving cryptocurrency, they were recorded on a blockchain — a list of transactions posted online. The Ethereum blockchain that he used can also record instructions to be automatically executed, called “smart contracts.”

When Alice told Jenkins to buy a certificate, she was actually having him execute a smart contract. That contract wasn’t written in English, or even legal jargon. It was one solitary line of computer code written in the language of the Ethereum blockchain. Its function was to give her unlimited access to his money.

Frantic, Jenkins messaged Coinbase, which said that, “after a review,” it couldn’t help. It said Jenkins had given away his “12-word recovery phrase.” (He had not.) He also messaged Tether, which said it couldn’t help, either. And he messaged CB-ETH, which he was jarringly coming to realize was not legitimate.

Contacted by The Post about the scams, Coinbase security officer Philip Martin said he couldn’t comment on Jenkins’s situation. But “some bad actors are going to get on the platform,” he said. “When we find them, we work with the appropriate law enforcement organization and the appropriate regulators to prevent them from doing harm.”

Tether’s chief technology officer, Paolo Ardoino, issued a statement in response to queries from The Post. “Tether takes all reports of theft, scam or loss very seriously,” it said. “Tether will freeze wallets if the Company is notified via valid law enforcement requests but cannot fulfill arbitrary requests to freeze wallets where these conditions are not met.”

The Post uncovered the breadth of the scam by analyzing crypto accounts belonging to Jenkins and four other victims, and then identifying 616 additional accounts with the same pattern of apparently stolen funds: First, the account owners approved access to their money, and then their money was moved somewhere else.

After his first investment of $5,000 disappeared in October, she denied his money was gone, but promised that if he brought his total investment up to $10,000, he’d earn a $3,000 reward. He invested the difference, taking out a loan to do so. That money disappeared, too. He took out another loan, then a third. That money also vanished.

“It’s not just elderly folks; it’s not just technically illiterate folks,” said Jan Santiago, a spokesman for the crypto-scam victim group Global Anti-Scam Organization that has helped popularize the term “pig-butchering.“ “Traders, bankers, lawyers, doctors, nurses — they all fell for this and lost a large amount of their savings.”

One of the particular features of crypto scams is how close they sit to conventional investing. Because of its volatility, crypto trading can have the feel of gambling — fortunes are gained and lost before lunch. Subareas like liquidity mining are even blurrier — the idea that your money could earn double-digit percentage returns with no risk seems too good to be true. But there are legitimate liquidity-mining operators, so how to tell the difference?

Furneaux said people can try to protect themselves by looking at when a domain was registered and avoiding newly created ones. But he said the industry also needs to do a better job of self-regulation. “I’m hoping social responsibility starts coming into play for more of these companies,” he said.