NFT Fraud in the UK Soars 400% in 2021
Reports of fraud related to Non-Fungible Tokens (NFTs) have risen by triple digits between 2020 and 2021, albeit from a low base, according to data seen by law firm Pinsent Masons.
The multi-national legal practice claimed today that while reporting figures were still only in double figures last year, the actual number for NFT fraud is likely to be much higher as inexperienced investors are drawn to the fast-growing market.
NFTs are unique blockchain records that can be minted and sold by digital content creators as proof of ownership.
Hinesh Shah, senior associate forensic accountant and financial crime investigator at Pinsent Masons, argued that fraud would continue to surge in the space this year.
“Genuine stories about the windfall profits individuals have made on NFT investments makes the more outlandish claims made by fraudsters, to lure investors, seem credible,” he added.
“Widespread media coverage of the NFT boom, like the cryptocurrency boom, is attracting consumers who have very little investment experience and therefore aren’t taking basic steps such as checking if an NFT is actually an NFT.”
Typical scams include fake or non-existent NFTs sold by fraudsters who do not have ownership rights to the underlying artwork or content.
This typically exploits the fact that many NFT trading platforms don’t have the resources to check NFTs up for sale against existing copyrighted artwork, Pinsent Masons claimed.
Other fraud involves legitimate NFT owners artificially increasing the value of their token by selling it to themselves several times, to create a false purchase history.
This so-called “wash trading” made scammers $8.9m last year, according to blockchain analysis firm Chainalysis.
In another case, an art collector was tricked into buying a non-existent Banksy NFT for £240,000 last year after a fraudster hacked the artist’s legitimate NFT page to insert a malicious link.
Jennifer Craven, Pinsent Masons senior associate and civil fraud and asset recovery specialist, argued that London is increasingly becoming a favored jurisdiction in which to hear NFT fraud claims.
“English Courts have quickly answered complicated legal questions concerning whether digital tokens can be classified as property. They are also more willing to treat fraud cases urgently – some cases come before a High Court Judge far quicker than is possible in other jurisdictions,” she explained.
“While the police and other enforcement agencies aren’t always able to help, a civil claim can be a more efficient and effective means of recovering lost money.”
