Dr. John Griffin: Cryptocurrency scams
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Cryptocurrency is seemingly everywhere, even the White House—and so are scams that purport to offer real crypto investment opportunities, but actually just steal money from the “investor.”
On Tuesday, February 25, 2025, SciLine interviewed: Dr. John Griffin is a professor of finance at the University of Texas, where he specializes in forensic finance, and is currently researching crypto fraud. See the footage and transcript from the interview below, or select ‘Contents’ on the left to skip to specific questions.
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Introduction
[0:00:19]
JOHN GRIFFIN: Hi, I’m John Griffin. I’m a chair and professor of finance at University of Texas at Austin McCombs School of Business, and I study forensic finance.
Interview with SciLine
Can you tell us how crypto investment scams work?
[0:00:34]
JOHN GRIFFIN: Basically, what these scams do is they often start with just a friendship, some way to interact with somebody. It, it could happen just via random text message. If you get a text message and it says, Hey, is this your bottle of wine? This is Anna, and you say, No, you must have the wrong number, then they’ll write back—there’s all kinds of random text messages like that that you’ve probably received. But also, apparently, these things are out there on various social media sites as well, and the goal is just to start a generic friendship over time, and then as that friendship develops, that person is making great investments, and they want to help you learn about investments.
After the investment talk starts, how does the scam progress?
[0:01:25]
JOHN GRIFFIN: What often happens is a very small investment into crypto. And so, for instance, you might be coached—if you were a victim—might be coached to move money to an organized crypto exchange such as Coinbase or crypto.com, and then that money, your funds, when you move it there is safe, but you’re just one step away from moving it to a non-safe platform. And what we find is that once you move it to those that platform, the transactions move off of there to a fake platform, but that fake platform is not really a platform at all. It’s just a net—it’s just an address that’s controlled by the criminals. So, the funds are really gone at that point. But one thing really unique we find in our address, in our in our data, is that we find a tremendous number of inducement payments going back to the exchange. So what happens in many of these cases is somebody moves, let’s say they move $500 to the to the fake investment that becomes $1,000, and they actually the perpetrators will actually encourage the victim to take that $1,000 and move it back to the exchange, move it back to Coinbase, move it back to crypto.com, or wherever they have an account. And in doing that, they’re building trust with the victim. The victims tried it out. They’ve seen, oh, I was able to move it on that platform, and I moved it back. It all works fine. And they may even do that a couple of times, but after, you know, they built that trust level. That’s when the real kill goes in, and they’re trying to really take out, take a large amount of funds. And in some surveys, they found over $200,000 is what the typical victim pays. And we do some back of the envelope in our study as well and find that that number seems to align fairly well. We’re finding around $220,000 from a potential victim.
How do criminals move money to and through the blockchain to defraud U.S. citizens?
[0:03:39]
JOHN GRIFFIN: Basically, what they do is they get you to set up an account at an organized exchange, and from there you move the money on the blockchain or off that exchange on the blockchain, and then once that fund is moved, funds are moved off the exchange and onto the blockchain. Then the criminals are in control of the funds at that point. And typically, what they do is they move the funds through a series of hops or transactions, and they move it in such a way as to obfuscate the funds from normal tracking activity. So, for instance, what they might do is they receive funds in ether, and they might transact the funds through a swap transaction and receive the funds out and tether, which is a stable coin. And we find in our paper that that criminals prefer to move the money in stable coins. Maybe it’s easy for them to split the profits that way. There’s a variety of reasons that the money is not going to fluctuate as much, but they tend to move the money into stable coins and then move the money across the blockchain to the place where they’re going to exit, which is also an organized exchange, typically in Southeast Asia.
Who are the typical victims of this scam?
[0:05:00]
JOHN GRIFFIN: This is a sophisticated scam on the scale, and it’s not really. There are a lot of scamming activities that target the really old folks, and those are kind of a different segment, and this scam would target people that have significant savings built up and also be tech-savvy enough to set up an account. So, it might even talk. They might even have an existing crypto exchange account set up. So, 40 years old to 70 years old is probably the typical age range.
Can you tell us about your research on crypto investment scams?
[0:05:41]
JOHN GRIFFIN: Basically, what our methodology is is that we collect from various sources. We have a set of addresses, which is the crypto addresses that from people that have been scammed. And so, if you just look at that initial set of addresses, well we have around 5000 addresses on Ethereum. That set of addresses, while it sounds large, is actually likely a very small subset of the total addresses. And the reason for that is because studies say that often as few as 3% or even less than that of financial crimes or reported financials, people that have been scammed. And there’s various reasons for that but what we do is we take those reported addresses and then we follow them. Because what happens is on the blockchain, you can actually follow transactions on the blockchain, and you can aggregate these things up, so we follow the transactions to see where the ultimate destination of the funds go, and we find these places where they go are—they’re called deposit addresses on major exchanges, and those deposit addresses are similar to a bank account. And so basically, we can see how much money is flowing into the bank account of these criminal networks, and we’re finding about $27 billion a year in our latest calculations.
Why does the hype around new technologies create opportunities for scammers?
[0:07:17]
JOHN GRIFFIN: Really, throughout history, there’s been this striking pattern that during boom periods, and during periods with new technologies, that there is a growing there’s a growing use of those technologies in scamming activity. So, imagine there’s like a hype around something. You don’t fully understand it, but yet you want to get in on it. And so, this pattern has been there throughout history. It’s been there with the South Sea bubble, the Mississippi bubble, and more recently in the dot com bubble. And now we see it. There was the blockchain technology, and a lot of people were talking how the blockchain even four or five years ago, people were saying the blockchain would be the most revolutionary technology ever, and it was, it was like the internet. And now, you know, of course, we’re talking about AI, but a lot of that hype on the blockchain was used by scammers to lure people into a different space.
How can people avoid falling victim to a scam like this?
[0:08:33]
JOHN GRIFFIN: One simple thing would be don’t invest in things you don’t fully understand. In general, when a lot of people talk about great investments in crypto and so forth, whether it be on this type of scam or even other related crypto activity, it’s generally a red flag. There’s really no easy way to make money. You know, you can think about the world is there’s lots of folks out there trying to make a buck. And if there was really an easy way for them to make money, they would not be telling you this magic secret, right? So that’s one thing we teach our undergraduates here at University of Texas, and it’s just, it’s very hard to beat the market. And in some sense, that’s what these people are advertising—that they’ve got some secret sauce, some special sauce, but yet they’re going to share it with you for some reason, and so generally don’t believe that. I think it’s also dangerous to even interact with folks that you don’t know that are just randomly text messaging. You don’t know who these people are, so forth. And there’s really nothing that can be gained from it. So, I don’t, you know, I just generally think it’s best to know who you’re, who you’re transacting with, who you’re, who you’re conversing with, and I would say that as a general rule of thumb to older people you know, don’t engage in these conversations. And if you do, somebody does contact them and say they’re from X, Y or Z agency, go online and find the FBI number and call the FBI office or something. Another tactic these scammers use to tell people, well don’t talk to other people about this. And they try to get you segmented. And in general, when people try to get you not talking to other people, that’s a red flag as well.
