Fraudsters exploit Bitcoin ATMs. Will California’s new laws help fight fraud?

Jim Meduri responded to a terrifying phone call in January from a man pretending to be his son.

The caller, who appeared to be on the verge of tears, said he had been in a car accident. Meduri was convinced his son had been arrested for driving under the influence and injuring a pregnant woman and her daughter.

The San Jose resident then spoke to people posing as a defense attorney and a courthouse clerk, who told him his son could be sent from the Bay Area to Nevada because of an outbreak of monkeypox in the prison. Panicked and in a hurry, Meduri agreed to send bail money via cryptocurrency. The fake lawyer directed Meduri, 65, to an ATM where people can buy the digital currency Bitcoin. He inserted $15,000 in cash into the machine, scanned a code provided by the fraudsters and transferred the money.

When Meduri realized he had been cheated, his money was gone.

“They played on fear and what a parent would do to help their child, and it was elaborate,” said Meduri, who was able to get most of his money back with the help of the District Attorney’s Office. Santa Clara County.

Meduri’s misfortune is just one example of how scammers are using Bitcoin ATMs to defraud their victims out of thousands of dollars, a fraud that law enforcement officials warn is on the rise.

The machines, located at convenience stores, gas stations and even bakeries, provide an easy way to quickly purchase cryptocurrencies with cash, which is more difficult to track than a bank transfer or check. As fraudsters exploit the convenience offered by these machines, Bitcoin ATMs are also attracting the attention of lawmakers, regulators and consumer advocacy groups seeking to protect people from fraud and exorbitant fees.

Starting in January, California will limit cryptocurrency ATM transactions to $1,000 per day per person under $1,000. Projet de loi du Sénat 401, what governor. signed into law. Some Bitcoin ATMs advertise limits of up to $50,000. The new law also prohibits Bitcoin ATM operators from charging fees greater than $5 or 15% of the transaction, whichever is greater, starting in 2025. Legislative staffers visited a crypto kiosk in Sacramento and found markups of up to 33% on certain digital assets. when they compared the prices at which cryptocurrencies are bought and sold. Typically, a crypto ATM charges fees between 12% and 25% on the value of the digital asset, according to legislative analysis.

“This bill is about ensuring that people who have been defrauded in our communities do not continue to watch our state walk away when we know these are real problems happening,” said Sen. Monique Limón, D -Goleta, who co-authored the bill.

Although similar scams existed long before the growing popularity of cryptocurrencies, the use of these digital assets by fraudsters is on the rise, according to the report. Commission fédérale du commerce. Since 2021, more than 46,000 people reported losing more than $1 billion in crypto to scams, the agency reported in 2022.

Victims of Bitcoin ATM scams say limiting transactions will give people more time to realize they are being duped and prevent them from using large sums of money to buy cryptocurrency. But crypto ATM operators say the new laws will hurt their industry and the small businesses they pay to rent space for the machines. There are more than 3,200 Bitcoin ATMs in California, according to ATM radar for coins site that tracks the location of machines.

“This bill does not adequately address how to crack down on fraud and instead takes a punitive path focused on specific technology that will thrill the industry and harm consumers, while doing nothing to stop bad actors ” said Charles Belle, executive director of the Blockchain Advocacy Coalition.

As California lawmakers have worked to balance the need to support the cryptocurrency industry and protect consumers, recent legislation has moved toward stricter state regulation. Another law would require digital financial asset companies to obtain a license from the California Department of Financial Protection and Innovation by July 2025.

By signing the law, Projet de loi 39 de l’Assemblée Newsom included a message That said, the law needs further refinement to provide greater clarity to consumers, businesses, and state regulators.

“It is essential that we strike the right balance between protecting consumers from harm and promoting an environment for responsible innovation,” he wrote.

In 2022, months before the collapse of the FTX cryptocurrency exchange, Newsom vetoed a facture similaire it would have required cryptocurrency companies to obtain a state license, citing concerns that a new regulatory program would be costly and actions would be premature.

Erin West, an assistant Santa Clara County prosecutor who helped Meduri get his money back, said scammers are turning to Bitcoin ATMs because they accept large amounts of cash. The value of Bitcoin may also increase, giving fraudsters a way to increase their looting.

Scammers use different tactics to trick people into handing over their money, including creating a false sense of urgency and gaining their trust. Some befriend or seduce their victims through social media or dating apps, luring them into a web of lies including fake emergencies. Other times, the scam begins with a text message directing victims to a fake cryptocurrency investment site.

West said his team was able to recover $2.5 million for scam victims like Meduri by tracking down the cryptocurrency exchange involved in the transaction. After Meduri invested $15,000 in a kiosk operated by Bitcoin ATM Services, the digital money ended up in cryptocurrency exchange Binance. The exchange complied with a search warrant, allowing its team to recover the funds stolen from Binance and return them to Meduri.

While it’s possible for cryptocurrency victims to get their money back even if it travels overseas, West said it’s rare. Some cryptocurrency exchanges are more cooperative with law enforcement than others, she said.

“This whole thing is a game of speed,” said West, who is part of a task force called REACT – Regional Enforcement Allied Computer Team – that fights high-tech crimes. “Can we present the victim before a competent investigator who knows how to find elements on the blockchain as quickly as possible? Blockchain is a type of shared digital database that stores information about cryptographic transactions.

Un enseignant retraité de 80 ans à Los Angeles, qui Les temps précédemment interviewée, a déclaré qu’elle n’avait pas pu récupérer les 69 000 $ qu’elle avait envoyés à des fraudeurs via un guichet automatique Bitcoin pendant plusieurs jours en mai. Les fonds volés se sont retrouvés dans les bourses de crypto-monnaie KuCoin et Huobi basées aux Seychelles.

An 80-year-old retired teacher in Los Angeles, who The Times previously interviewed, said she was unable to get back the $69,000 she sent to scammers through a Bitcoin ATM for several days in May. The stolen funds ended up in Seychelles-based cryptocurrency exchanges KuCoin and Huobi.

The scam began when Ms K, who wishes to remain anonymous because she is more reluctant to give out her personal information, received a loud pop-up alert saying her computer was infected with a virus. After calling a fake tech support number and later speaking to someone posing as the FBI, Ms. K believed her Chase bank account had been taken over by foreign Chinese hackers involved in a child pornography case. To continue their elaborate ruse, the scammers also sent Ms. K fake Chasser la banque e-mails.

“If it hadn’t been for this convoluted hodgepodge, I probably would have been a little smarter and wouldn’t have fallen into this trap,” Ms. K said. “I feel so disappointed in myself- even as I fell hook, line and sinker.”

Ms. K said the FBI impersonator told her to withdraw $75,000 in cash over three days from her Chase checking account and not tell anyone. If asked by bank employees, the scammer would tell Ms. K to say she was withdrawing money for construction.

The FBI impersonator convinced Ms. K. that she could help law enforcement catch child predators if she converted the money into cryptocurrency and transferred the funds to a digital wallet that the agency would monitor. The elaborate lie eventually led Ms. K to a Coinhub Bitcoin ATM at a donut shop in Highland Park, which accepts up to $25,000 in cash per day per person.

By the time she realized it was a scam, Ms K had already sent $69,000 to the scammers. She reported the crime to the police, but was unable to get her money back.

Un guichet automatique Bitcoin se trouve à côté d’un distributeur automatique de billets ordinaire dans un magasin

A Bitcoin ATM sits next to a regular ATM at a gas station convenience store in Los Angeles. (Chris Delmas/AFP via Getty Images)

Under federal law, Bitcoin ATM operators are generally considered money services businesses and therefore must register with the Financial Crimes Enforcement Network, or FinCEN, of the U.S. Department of the Treasury. The agency collects and analyzes financial information to combat money laundering and other illegal uses. Companies must also maintain an anti-money laundering program and report any suspicious activity to the agency.

Logan Short, CEO of LSGT Services, which does business as Coinhub Bitcoin ATM, said in an email that the company is doing “everything in its power to protect consumers, but unfortunately, fraud does not “is 100% preventable in any sector.” The Las Vegas-based company is registered with FinCEN, but has been accused of operating crypto ATMs in Connecticut without the required state license.

Bitcoin ATM Services, which operates the kiosk used by Meduri, says on its website that it is registered with FinCEN. The Times could not find any record of Bitcoin ATM Services registering as a money services business with FinCEN. A company called Cash ATM Services which has the same postal address as Bitcoin ATM Services has been registered. Bitcoin ATM Services did not respond to a request for comment.

Law enforcement has cracked down on unlicensed crypto ATMs, but it can be difficult for consumers to determine how keen the industry is to address these concerns. In 2020, a Yorba Linda man pleaded guilty to charges of operating Bitcoin ATMs without a license and failing to maintain an anti-money laundering program, even though he knew criminals were using the funds. The illegal business, known as Herocoin, allowed people to buy and sell Bitcoin in transactions of up to $25,000 and charged fees of up to 25%.

Cryptocurrency regulations vary by state. California has long exempted crypto ATMs from licensing requirements for businesses engaged in money transfer.

Cryptocurrency ATMs serve people who don’t have a bank account or just want to be able to buy cryptocurrency at a gas station, convenience store or other store, said Ayman Rida, CEO of Cash2Bitcoin , which works with cryptocurrency ATM operators, including in California. comply with state regulations. Fees charged at ATMs are higher than those at online exchanges, he said, to cover some expenses. This includes the cost of renting the space, maintaining the machines and managing cash flow.

Crypto ATM operators are not opposed to clearer rules and guidelines, he said, but they are against capping fees and transactions. Crypto ATM operators generally require more forms of identification if a customer makes a transaction over $1,000 and, in some cases, flag high-value transactions, which could help stop fraudsters.

“Scammers are getting smarter and smarter,” he said. “My question to the regulators is: why are you killing an industry when scams are also affecting other industries, but they are doing nothing either?

As for Meduri, who was duped into a Bitcoin ATM scam, he’s just relieved that his son wasn’t actually arrested and in a car accident. Oddly enough, finding out that it was all an elaborate lie gave me a sense of relief.

“My wife and I were destroyed that day,” he said. “I did not care. I was happy he was okay.”

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