Cash News
On this episode of The Long View, Kathy Stokes, director of Fraud Prevention Programs with AARP, breaks down the growing fraud landscape, the role of crypto-related scams, and how investors can learn to protect themselves.
Here are a few excerpts from Stokes’ conversation with Morningstar’s Christine Benz and Amy Arnott.
Why Financial Fraud Has Recently Increased Dramatically
Amy Arnott: It looks like investment fraud has increased pretty dramatically over the past few years. Why do you think that has happened?
Kathy Stokes: Well, the $950 million is a huge undercount by everybody’s estimation. The overall losses, according to the Federal Trade Commission in 2023—and I won’t even call them losses, the money was stolen; they didn’t lose it, somebody stole it from them—was somewhere in the neighborhood of $10 billion in 2023. And that’s an increase from just before the pandemic of $2.4 billion. So, you see that meteoric rise. But taking what experts presume is the underreporting, the FTC in 2022 thinks that fraud was more like maybe $137 billion. Let that sink in for a minute—$137 billion in one year, leaving our economy through this crime. Investment fraud is huge because of cryptocurrency. That is what we’re seeing jump off the page these days.
Why Crypto Has Become the Center of Financial Fraud
Christine Benz: What about crypto, do you think, has been an especially rich vein for people perpetrating fraud on consumers?
Stokes: Well, I can tell you, what was it, three years ago, two years ago, when all those Super Bowl ads were all about getting rich on cryptocurrency, it totally normalized it. And criminals have just jumped on the bandwagon. When there’s something new and consumers don’t know a lot about it, it’s just a treasure trove for criminals because they can make you believe anything about it. And cryptocurrency is one of those spaces right now. And largely, from what I understand, it’s coming from Chinese mobs. They are victimizing people on both ends of this, where they are enslaving people through convincing them that they’re coming for a job, and they’re actually employees in their scam center, and they’re making calls, they’re finding people online, they’re sending what seems to be a text made in error just to try to connect to somebody to become a friend, to become eventually a trusted person in that other’s life. And then they use that to tell them, “Hey, you see how big I’m living. I’m doing this because I’m an expert in investing in cryptocurrency, and I can help you get started.” And that’s where it begins. And the money lost, the money stolen is just unbelievable. People are losing everything. And by everything I’m saying, everything they initially invested that they actually had the cash for, then taking money out of the college funds for the kids, remortgaging the house, people are losing everything.
The Exploitation in ‘Financial Grooming’
Arnott: So, is that what we often hear described as “a pig butchering scam,” where someone will try to build trust and an emotional connection and then use that to exploit the person on the other side?
Stokes: Yeah, exactly. And I don’t user that term because it’s just so painful for a victim to be then again victimized by what it’s being called. And it’s being called that because that’s what the criminals call it. But it’s that name for the slaughter. I use “financial grooming.” I think it’s a much more direct explanation of what’s happening.
How Isolation Plays a Role in Investment Fraud of Older Adults
Benz: The Journal had a really good piece a couple of weeks ago about investment fraud, similar to what you’ve been talking about, Kathy, but it was about exploiting lonely older adults. But it was an investment scam all the same where this gentleman profiled in the article really staked his whole fortune. I think it was maybe foreign-exchange-related or something with coaching from an entity to effectively send them all of his retirement assets.
Stokes: This is what happens. Isolation, loneliness are a plague. When you don’t have somebody to bounce something off, when you’re not having regular social connection, the call coming in is an opportunity to have a conversation. The text made in error is an opportunity to engage with somebody. Even just going online and connecting with people that have similar interests of yours. It’s things that we do because we’re isolated, we’re alone, we’re lonely. And then that’s where the susceptibility really comes in.