What is a Pig Butchering Scam?
In the world of financial fraud, a disturbing new trend has emerged, leaving victims both emotionally shattered and financially devastated. “Pig butchering” scams are a variation of classic romance or investment scams and tend to target the older population who have amassed wealth over the years.
The term “pig butchering” alludes to the process of preparing and fattening a pig for slaughter. Unsuspecting individuals are lured into investing in seemingly legitimate virtual currency opportunities, only to be tricked out of their funds later.
According to the U.S. Attorney’s Office in the Central District of California1, the Department of Justice has confiscated virtual currency valued at approximately $112 million linked to these cryptocurrency investment frauds. In 2022, investment fraud was the leading cause of financial losses among scams reported to the FBI’s Internet Crimes Complaint Center (IC3), amounting to a staggering $3.31 billion. Most of these scams centered around cryptocurrency, including “pig butchering”, which saw a significant increase of 183% compared to 2021, resulting in $2.57 billion for the year. According to another source, Binance, a prominent cryptocurrency exchange, has disclosed data2 showing a surge in “pig butchering” scams reported to the company, a 100.5% rise from 2022 to 2023.
Perpetrators of these scams use a range of deceptive tactics, including assuming false identities, faking the promise of meaningful relationships, and telling elaborate lies to garner trust. Their ultimate goal is to manipulate victims into believing they are engaged in a trustworthy partnership before executing their fraudulent schemes. In this digital era, criminals continuously find new ways to exploit vulnerabilities, and “fattening the pig for the scam” has become their latest method.
The initial step in “pig butchering” involves scammers who leverage dating apps and social media sites to identify potential victims. The victims are encouraged to invest small amounts of money, while the scammer demonstrates a gain on the investment3. Sometimes, the victims are encouraged to withdraw money to add credence to the illusion. After some time, the scammer convinces the victim to invest larger and larger amounts on the fake platform. At this point, the scammers abruptly sever all ties with the victim, leaving them emotionally traumatized and financially drained – an act referred to as “butchering” the pig. Victims are not only left without their money but also without the companionship they believe to be genuine.
A variation of the scam is using unwitting victims as “money mules” who open bank accounts to receive large sums of illicitly gained money stolen by the scammers so that the funds can be laundered through their accounts and sent back to the other mules employed by the scammers. The money may originate from these crypto investment scams or other crimes, such as filing fraudulent tax returns on behalf of victims, resulting in substantial refunds deposited into victims’ bank accounts. The scammers, who have built and maintained the illusion of a loving relationship, then convince victims to convert the illegal funds into cryptocurrency, making it even more challenging for law enforcement to trace and recover the money.
These individuals, often unaware that they are handling illegal funds, unknowingly facilitate the conversion from traditional currency to cryptocurrency, making them innocent money mules. This process can be overwhelming and confusing for the victims since they are thrust into a world of finance and technology that they may not fully comprehend.
Incorporating cryptocurrency introduces a layer of complexity that increases the likelihood of people falling prey to these scams, regardless of age. The FBI reported the highest number of reports from victims aged 30 to 494. Cryptocurrency remains an unfamiliar concept for many, which can lead them to trust scammers who appear to be knowledgeable about cryptocurrency.
Another significant contributing factor to the increasing prevalence of “pig scams” is the growing availability of cryptocurrency ATMs. In the U.S., there are approximately 70,000 cryptocurrency ATMs. In Santa Barbara alone, at least seven of these machines provide scammers with an easy and anonymous means of converting their ill-obtained funds into untraceable digital currency. As per coinatmradar.com5, cryptocurrency ATMs in Santa Barbara are in liquor stores such as Mesa Liquors, smoke shops, and gas stations.
How to Protect Your Finances in the Digital Age¶
American Riviera Bank is actively working to prevent these scams. They have an acute awareness of the warning signs and readily involve law enforcement agencies to assist the IRS in investigating and prosecuting those behind “pig butchering scams.” Their efforts have played and will continue to play, a crucial role in identifying and apprehending criminals involved in these schemes.
We have seen an increase in these devastating scams lately, and we will remain vigilant in combating them. We’re dedicated to raising awareness and educating the public about the red flags associated with romance and investment scams so that individuals can better protect themselves from falling victim.
Laurel Sykes, Executive Vice President and Chief Risk Officer
While scammers often target older victims, it is essential to remember that anyone can fall prey. According to Sykes, “In the latest cases we’ve witnessed where accountholders are unwittingly used as money mules to fund illicit activity, the victims have been professionals in their early 40s or 50s. None of us are immune. If it feels too good to be true, it probably is.”
It has become so common in the last 12 months that the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert6 to banks earlier this month. The alert includes a case study on investment scams, where the victims transferred their investments into deposit addresses that the scammers provided through seven scammer-controlled online domain names. The victims’ funds were immediately transferred through numerous private wallets and swapping services to conceal the source of the funds, with the victims losing over $10 million.
In addition to local banks such as American Riviera Bank, which want to alert the public to this terrible crime, the investment community also warns of red flags to watch out for. In December 2022, FINRA issued an alert7 with several helpful red flags for identifying potential scams.
Red Flags to Watch Out For:¶
- Unexpected contact: Never respond to unsolicited messages from unknown contacts, even about seemingly benign topics, primarily via text message and on encrypted messaging applications.
- Refusal to participate in video chats: If someone you’ve been messaging with consistently declines to interact face-to-face, they likely aren’t the person from the profile photo.
- Request for financial information: Don’t share personal financial information with individuals you’ve never met. If a new virtual friend or romantic connection starts making financial inquiries, put the brakes on the relationship.
- Invitation to invest in specific financial products: Be wary of any unsolicited investment advice or tips, particularly from someone you’ve only spoken to online, even if they suggest you trade through your account. Always question what a source has to gain from sharing tips with you and whether the transaction fits your financial goals and investment strategy.
- Unknown or confusing investment opportunity: Carefully evaluate the product and the person and company requesting your investment. Try adding words like “scam” or “fraud” along with a basic search to see the results. Consider running recommendations by a third party or an investment professional with no stake in the investment. Use FINRA BrokerCheck to see if the promoter is a registered investment professional.
- Unfamiliar trading platforms: Do extensive research before moving any money, particularly in an emerging market like cryptocurrency, which has hundreds of exchanges and new avenues for trading continuing to evolve. Who controls the platform? What security measures are in place? How can you withdraw funds if needed? Don’t put your assets there if you don’t know the answers to those questions.
- Exaggerated claims and elevated emotions: Take a closer look at any investment that offers much higher than average returns or is touted as “guaranteed.” Fraudsters will often use their knowledge about you to appeal to your emotions—like, “Don’t you want to have money to send your kids to college?”
- Sense of urgency about an upcoming news announcement or share price increase: Remember that insider trading is illegal, and you should never trade company shares based on material, nonpublic information.
Local news outlets have also reported on this emerging scam. The Pacific Coast Business Time featured an article detailing the surge of Pig Butchering Scams. You can access the article here.
[1] https://www.justice.gov/usao-c...
[2] https://www.technologyreview.c....
[3] https://www.michigan.gov/ag/co...
[4] https://www.justice.gov/usao-c...
[5] https://coinatmradar.com/city/...
[6]https://www.fincen.gov/sites/d...
[7] https://www.fincen.gov/sites/d...
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