Regulator Warns 'Victim-Blaming' Attitudes Could Deter Crypto Scam Reporting

A U.S. state securities official has raised concerns that victim-blaming language is discouraging individuals from reporting crypto-related fraud, particularly among older Americans. 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 to the Securities and Exchange Commission (SEC) Investor Advisory Committee on March 6, highlighting a surge in digital asset fraud driven by advanced technologies like artificial intelligence (AI) and cryptocurrency ATMs.

Surge in Crypto Fraud Targeting Retail Investors

McHenry’s testimony focuses on the growing threat of digital asset fraud, which is increasingly exploiting retail investors, with a particular focus on seniors. She cites the NASAA’s 2024 Enforcement Report, which reveals that digital assets were involved in more investigations and enforcement actions than any other financial product or scheme, including stocks, Ponzi schemes, and internet fraud.

"States continue to see a growing number of complaints, investigations, and enforcement actions involving digital assets," McHenry stated in her prepared remarks. "This year, the survey results showed more investigations and actions tied to digital assets than any other product or scheme."

According to McHenry, scammers are using AI tools, social media platforms, and cryptocurrency ATMs to deceive Americans, with these tools making scams appear increasingly legitimate and difficult to detect. She warned that this shift in tactics requires regulators to move beyond traditional fraud detection methods and focus on improving media literacy for consumers.

The Role of AI and Crypto ATMs in Fraud

AI technology has played a pivotal role in making scams more convincing, with fraudsters using it to create highly sophisticated and believable schemes. McHenry advocates for regulatory bodies to prioritize education and media literacy rather than relying solely on traditional “tips and tricks” to identify fraud.

Another significant concern highlighted in McHenry’s testimony is the growing use of cryptocurrency ATMs by scammers. Victims are often coerced into depositing cash into these ATMs, only to see the funds converted into cryptocurrency and transferred to fraudsters. In Nebraska, McHenry pointed out that a staggering 98% of transactions through one cryptocurrency ATM operator were tied to scams.

The Impact of 'Victim-Blaming' on Scam Reporting

McHenry also emphasized the harmful impact of "victim-blaming" language on scam reporting. She noted that many victims feel hesitant to come forward due to the stigma associated with being duped. "Using victim-blaming language can be unintentional, but harmful," McHenry explained. "We should place the blame where it belongs – on the perpetrator, not the victim – to rebuild confidence and encourage more people to report fraud."

Seniors: A Disproportionate Target of Crypto Fraud

McHenry also underscored that older Americans are particularly vulnerable to crypto scams, often because they have accumulated wealth over their lifetimes but may lack the technological expertise to recognize and avoid fraud. Common scams targeting seniors include tech support fraud and bogus investment schemes, which exploit their trust and unfamiliarity with digital technologies.

“These investors are tempting targets,” McHenry said, “because they have accumulated wealth but may not have the digital skills to detect and avoid scams.”

The Need for Stronger Fraud Prevention and Education

The testimony also highlights how advancements in technology and financial innovations are complicating the landscape for fraud prevention. McHenry stressed the importance of regulatory collaboration, the development of stronger AI-driven fraud detection tools, and more robust investor education to combat the rise in AI-powered and crypto-related scams.

With scams becoming increasingly sophisticated, McHenry urged regulators to work together more effectively and focus on providing consumers with the tools and knowledge needed to navigate the evolving risks in the digital asset space.

Conclusion

McHenry’s testimony paints a clear picture of the challenges facing U.S. regulators in tackling the growing tide of digital asset fraud. The rise of AI tools and crypto ATMs has made scams more believable and harder to detect, particularly among older Americans who may lack the technical knowledge to recognize fraudulent schemes. As these scams continue to evolve, McHenry calls for more focused efforts on media literacy, regulatory cooperation, and stronger fraud detection technologies to protect vulnerable investors.

Her remarks underscore the urgent need to shift the narrative around fraud, moving away from victim-blaming and focusing instead on empowering individuals to report fraud and protect themselves from increasingly sophisticated digital threats.