AI-Driven Crypto Fraud Surge: Regulators Sound Alarm on Senior Victims

US regulators are stepping up efforts to combat a surge in digital asset fraud, driven by increasingly sophisticated artificial intelligence tools. Claire McHenry, deputy director of the Nebraska Department of Banking and Finance (NDBF) and president of the North American Securities Administrators Association (NASAA), is set to present her testimony before the Securities and Exchange Commission (SEC) Investor Advisory Committee on March 6. McHenry's testimony will highlight a significant increase in digital asset fraud, with scammers leveraging AI, social media, and cryptocurrency ATMs to exploit retail investors in America, especially seniors.

According to NASAA's 2024 Enforcement Report, digital assets were cited more frequently in investigations and enforcement actions than any other financial product or scheme, including stocks, Ponzi schemes, internet-based fraud, and promissory notes. McHenry's testimony states that states continue to see a growing number of complaints, investigations, and enforcement actions involving digital assets. She emphasizes the need for regulators to shift away from relying on "tips and tricks" and instead "emphasize media literacy" to combat AI-driven scams.

Most financial fraud and scams involve the use of cryptocurrency ATMs. Scammers often try and convince victims to deposit cash into crypto ATMs and collect it in the form of cryptocurrencies. According to McHenry, victims of financial fraud are sensitive to how the scams are perceived, which may prevent many from reporting such crimes. She urges regulators to avoid victim-blaming language and instead focus on rebuilding confidence and encouraging reporting.

McHenry's testimony also underscores the disproportionate impact of crypto fraud on older Americans, primarily in relation to tech support scams and investment scams. She highlights how evolving technology and financial innovations are making fraud prevention more complex. She stresses the need for regulatory collaboration, stronger AI fraud detection, and improved investor education to protect Americans from AI-driven and crypto-related fraud.