A U.S. state securities regulator is initiating a strategic proposal aimed at enhancing protections for Americans against the rising tide of digital asset fraud, a trend noticeably fueled by advanced artificial intelligence tools. Claire McHenry, who serves as the deputy director of the Nebraska Department of Banking and Finance and also presides over the North American Securities Administrators Association (NASAA), is set to present her insights before the Securities and Exchange Commission (SEC) Investor Advisory Committee.
Her testimony, scheduled for March 6, will shed light on a troubling increase in digital asset-related fraud. This rise has seen scammers leveraging AI technology, social media platforms, and cryptocurrency ATMs to target retail investors, with a particular focus on vulnerable demographics such as seniors. The NASAA's upcoming 2024 Enforcement Report reflects a significant trend: investigations and enforcement actions involving digital assets have outpaced those concerning any other financial product or fraudulent scheme in recent times.
This includes traditional investment vehicles such as stocks, Ponzi schemes, internet-based fraud, and promissory notes. McHenry is prepared to discuss the alarming rise in complaints, investigations, and enforcement measures linked to digital assets, revealing that this year's survey results indicate more actions connected to digital assets than any other financial product or scheme. McHenry has observed that AI tools are instrumental in crafting increasingly convincing scams, leading to a call for regulators to abandon reliance on mere 'tips and tricks'.
Instead, there is a pressing need to enhance media literacy among investors. The focus is also shifting towards older investors and the systemic role of cryptocurrency ATMs in financial fraud incidents. Scammers often lure victims into depositing cash at crypto ATMs, converting it to cryptocurrencies, which can be difficult to trace. A staggering 98% of funds sent via a specific cryptocurrency ATM company in Nebraska were found to be associated with scam transactions.
The testimony emphasizes how older Americans are disproportionately affected by these crypto fraud schemes, particularly in instances of tech support and investment scams. As this demographic typically holds considerable wealth, they present enticing targets, especially given their potential lack of technological proficiency in identifying and avoiding fraudulent schemes. McHenry's remarks highlight the multifaceted challenges of fraud prevention, complicating matters further with the continuous evolution of technology and financial products.
She advocates for regulatory bodies to collaborate more intensively, develop stronger AI-driven fraud detection systems, and improve investor education methods to effectively shield Americans from the dual threat posed by AI-enhanced scams and crypto-related fraudulent activities..