While new technology is revolutionizing investing, it has come with unprecedented risks. Tools like artificial intelligence and cryptocurrencies have provided fraudsters with new ways to exploit unsuspecting investors.

The latest Securities and Exchange Commission's (SEC) fiscal year 2024 report showed a double-digit increase in losses from investment scams. The situation is worse in the crypto space, which posted a more than 50% increase in deception.

Complex Investment Fraud

According to the data from the regulator's Office of the Investor Advocate, complaints tied to crypto-related scams rose by 53% in 2023, totaling $3.96 billion in reported losses.

Criminals are now using new technology to create convincing marketing materials, mimic legitimate investment products, and extract unrecoverable payments from victims. Fake websites, deepfake media, and manipulated audio or text are also common in scams targeting retail investors.

Commenting on the report, Cristina Firvida, Investor Advocate, said: “In our June report, we spotlighted an explosion in fraud complaints. Fraud incidents continue to grow this year at an alarming pace, as reported by the Office of the Ombuds, as well as numerous regulators and law enforcement agencies.”

Office of Investor Education and Advocacy reported a steady increase in crypto-related complaints, jumping from 1,075 in 2020 to over 5,000 in 2023. The schemes also involve crypto payments and hiding suspicious financial transactions.

The FBI's Internet Crime Complaint Center estimates that 71% of crypto-related financial fraud in 2023 stemmed from investment scams, with total losses reaching $5.6 billion.

The Federal Trade Commission also reported a troubling 21% increase in consumer losses due to investment scams from 2022 to 2023. In total, consumers lost $4.6 billion to investment fraud, reflecting the broader trend of rising fraudulent activity.

AI-Powered Scams

In regard to AI, fraudsters reportedly use AI to clone voices, produce counterfeit websites, and develop realistic-looking investment materials. According to INTERPOL, these tools have lowered the cost of orchestrating large-scale fraud and made fraud hard to uncover.

Regulators are focusing on improving financial disclosures to make them easier for retail investors to understand, thereby reducing the opacity that fraudsters exploit. The SEC is also racing to address legislative gaps, while agencies like the Federal Trade Commission estimate that underreporting could mean total fraud losses are far higher than reported figures suggest.

The watchdog is also collaborating with law enforcement to promote consumer education and enhance oversight of emerging technologies. The regulator also aims to prevent fraud and support victims in recovering losses.