SEC Sees 21% Increase In Investment Fraud Losses

According to reports, new technology has revolutionized investing, but it has also introduced significant risks. Tools like cryptocurrencies  and artificial intelligence have provided fraudsters with new methods to deceive unsuspecting investors.

The Securities and Exchange Commission’s (SEC) fiscal year 2024 report revealed a sharp increase in losses from investment scams. The crypto space, in particular, has seen a rise of more than 50% in fraudulent activities.

Crypto Scams Surge As Fraudsters Exploit New Technology

According to the SEC’s Office of the Investor Advocate, complaints related to crypto scams grew by 53% in 2023, with reported losses totaling $3.96 billion.

Criminals are using advanced technology to create convincing marketing materials, mimic legitimate investment products, and extract payments from victims that cannot be recovered. Fake websites, deepfake media, and manipulated audio or text are now common tactics used in scams targeting retail investors.

Cristina Firvida, Investor Advocate, commented on the alarming trend, stating that fraud incidents continue to rise at an alarming rate. She referenced a June report, noting that fraud complaints had exploded and that numerous regulators and law enforcement agencies had reported similar concerns.

The SEC’s Office of Investor Education and Advocacy has also observed a steady rise in crypto-related complaints, with the number increasing from 1,075 in 2020 to over 5,000 in 2023. These scams often involve crypto payments and efforts to hide suspicious financial transactions.

The FBI’s Internet Crime Complaint Center estimated that 71% of crypto-related financial fraud in 2023 stemmed from investment scams, with total losses reaching $5.6 billion.

AI-Driven Fraud Rises As Regulators Strive To Protect Investors

The Federal Trade Commission (FTC) reported a 21% increase in consumer losses due to investment fraud between 2022 and 2023, bringing the total to $4.6 billion. This reflects a broader trend of rising fraudulent activities in the investment sector.

Fraudsters are also exploiting artificial intelligence tools. They use AI to clone voices, create counterfeit websites, and develop realistic-looking investment materials. According to INTERPOL, these tools have reduced the cost of conducting large-scale fraud and made it harder to detect.

Regulators are working to improve financial disclosures to make them easier for retail investors to understand, aiming to reduce the confusion that fraudsters exploit. The SEC is also addressing legislative gaps, while the FTC estimates that underreporting could mean the true scale of fraud losses is far higher than reported figures suggest.

To tackle the issue, the SEC is collaborating with law enforcement to promote consumer education and strengthen oversight of emerging technologies. The goal is to prevent fraud and help victims recover their losses.