Although cryptocurrency is not a mainstream payment method, it has become an alarmingly popular method for scammers to defraud individuals and businesses.
Cryptocurrency presents the opportunity to break free of traditional, government regulated banking methods. The speculative nature of the industry, the volatility of the currency, the constant evolvement of the related technology, and the difficulty in understanding the technology has enticed scammers who want to cash in on the public’s craze.
Fraudsters exploit these conditions and consistently present themselves as crypto experts who can help individuals become a part of lucrative opportunities. The Federal Trade Commission (FTC) reported that more than 46,000 individuals were involved in crypto scams in 2021 alone, resulting in a collective loss of $1 billion.
In particular, crypto mining scams and fraudulent mining operations are skyrocketing. Simply put, crypto mining is the process of creating new digital currency or “coins.” The process involves using special equipment with software designed to solve the complicated, cryptographic equations needed to release new coins into circulation. Once they achieve this, the miners are rewarded with newly minted coins, giving people ample incentive to invest in mining equipment.
A Look at the Latest Crypto Mining Scam
Fraudsters are taking advantage of people’s interest in crypto mining and their desire to obtain the necessary equipment.
A New York man defrauded more than a dozen victims out of a collective $2 million through a long-running crypto mining scam. Chester “Chet” Stojanovich, 38, was arrested by the Federal Bureau of Investigation (FBI) in April 2022 and charged with one count of wire fraud.
From March 2019 to September 2021, Stojanovich posed as a dealer of crypto mining equipment. Stojanovich and the various companies under his control (Chet Mining, Chet Mining Canada, and Phoenix Data LLC) told investors that he would purchase mining equipment on their behalf and then take payments to host that equipment for them at a facility in Goose Bay, Canada.
According to the FBI, Stojanovich did not purchase the mining equipment as promised. Likewise, the hosting facilities in Canada were completely fictitious. Instead, Stojanovich spent money from his fraudulent scheme lavishly. Some of his purchases included private jet flights, limousine rides, parties, hotels, restaurants, Apple products, gifts for his wife, more than $33,000 to an online casino, and $80,000 of personal credit card debt.
Stojanovich took payments from customers for approximately 3,000 miners. In order to convince customers who became suspicious, he purchased about 75 miners from Amazon and eBay. He used these miners as props to create the illusion that the mining equipment had been purchased as promised. Whenever customers asked for evidence of their purchase, Stojanovich would simply send them pictures of the miners he had bought as well as photos of himself standing near piled-up boxes.
In one instance, a customer demanded Stojanovich provide solid proof of his mining equipment purchase, including serial numbers, insurance policy documents, or shipping documents. When Stojanovich couldn’t provide this, the customer demanded Stojanovich take him to the hosting facility in Canada. Stojanovich agreed and the two set off from New York City in a rental car. However, it ended with Stojanovich abandoning the customer at the Buffalo airport and telling him he would not receive a refund.
In September 2019, Stojanovich abruptly halted communications with customers. Two months later, he resurfaced and told his customers that the owner of the fictional hosting facility in Canada had gone bankrupt and run away with their equipment. Despite receiving several lawsuits from his victims, Stojanovich continued with a second scam, convincing three mining brokers to purchase $200,000 in equipment. He eventually refunded them $61,000 for the nonexistent equipment and kept the rest for himself.
Stojanovich faces up to 20 years in prison.
Avoiding Crypto Scams
Cryptocurrency scams are driving online fraud. How can you stay vigilant? When it comes to crypto, it’s best to remain skeptical about new opportunities and wary of individuals who promise that you do not need to understand the technology in order to make money. Warning signs of crypto scams can include:
Promises of guaranteed returns
Excessive marketing & extravagant claims
Poor or non-existent whitepapers
Unnamed team members and anonymous owners
High-pressure to invest in an opportunity quickly
Cold calls about crypto investment opportunities
Always take your time to carry out research and fully vet crypto opportunities. If you would like to read more about cryptocurrency and scams, visit the official FTC website for consumer advice: https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams
Report Crypto Fraud
Report fraud and other suspicious activity involving cryptocurrency to the FTC at https://reportfraud.ftc.gov/#/ or the Internet Crime Complaint Center (IC3) at https://www.ic3.gov/Home/FileComplaint.
Check back with Fact Finder Forensics as we continue shining a light on emerging fraud landscapes.