Scammers are turning to unregulated Bitcoin ATMs to steal millions

Bitcoin ATMs have become increasingly common, popping up at gas stations, convenience stores, smoke shops, and grocery stores. Five years ago, there were nearly 1,000 cryptocurrency ATMs in Texas. Today, there is Nearly 4000. The machines provide a legitimate and easy way to buy cryptocurrencies, but with convenience comes risk.

the The FBI warns that scammers are increasingly using these devicesWhich led to huge losses for the victims. From 2020 to 2023, consumer losses to Bitcoin ATM scams rose tenfold to $114 million. According to the Federal Trade Commission. This figure only includes reported losses, which suggests the actual amount may be higher.

Joseph Puentillo, 80, was one of those victims. He received a frantic phone call claiming that his son had been arrested and needed $5,000 in legal fees.

Puentillo said the caller instructed him to withdraw money from his bank and deposit it into a bitcoin ATM at his local grocery store. Buentello followed the instructions, but later realized he had been scammed. The funds were instantly converted into Bitcoin and sent to the cryptocurrency wallet, making them non-refundable.

“I was scared,” said Puentillo, who had never heard of a bitcoin ATM before. “I hit the panic button and let my panic get the better of my good judgment.”

In a statement about the Buentello case, Bitcoin ATM operator Coinme said: “Our customer service team is dedicated to supporting victims of fraud, but in such cases, transactions are immediately sent outside the Coinme platform, making the funds unrecoverable.” Tom Thumb, the grocery store that hosts the Bitcoin ATMs, said the ATMs are private, self-service transactions. Both Tom Thumb and Coinme noticed multiple fraud warning screens on the kiosk.

Limitations on law enforcement

Law enforcement faces challenges in dealing with these crimes. In one case, the McLennan County Sheriff’s Office seized cash directly from a Bitcoin ATM and returned it to an 83-year-old fraud victim. However, the operator of the Bitcoin ATM filed a lawsuit against the Sheriff’s Office, claiming that the seizure was illegal.

The lawsuit was eventually dropped and the woman was allowed to keep the money, but only after the county admitted that the money had been taken in error and was legally owned by the Bitcoin ATM operator.

Despite the lawsuit, McLennan County Sheriff Parnell McNamara said he has no regrets about the way his department handled the case.

“We got the lady’s money back. She should have gotten her money back. If we hadn’t done it the way we did, we wouldn’t have gotten her money back,” he said.

Bitcoin ATM operators claim to take extensive measures to protect users from fraud, including displaying up to six fraud warning screens before any transaction. However, former industry insiders see these warnings as insufficient.

Anthony Zervos, a former fraud analyst at DigitalMint, said that to reduce fraud, his company required most first-time bitcoin ATM customers to speak to a representative before making a transaction.

Zervos said most of the customers he spoke with were victims of fraud without their knowledge, but by speaking with them first the company said it prevented many fraud victims from losing money. After failing to get the industry to crack down on fraud, DigitalMint has decided to exit the ATM business.

“Something has to be done because we’ve heard some horror stories,” Zervos told the CBS News Texas I-Team.

Potential solutions

In recent years, a few states, including California, Vermont, and Minnesota, have passed laws regulating Bitcoin ATMs. However, most parts of the country, including Texas, have no regulations.

US Senator Dick Durbin of Illinois has taken notice of this issue. Last fall, he He wrote to the ten largest Bitcoin ATM operatorsasking about their fraud prevention efforts. Found Their responses “Not reassured.” Durbin plans to introduce federal legislation that includes a cap on the amount one can deposit into a Bitcoin ATM and requires a 72-hour hold on all transactions for new users.

“It is time for the cryptocurrency industry to step up and come up with a good standard to protect seniors from this type of exploitation,” Durbin told the I-Team.

Several bitcoin ATM operators said they look forward to working with lawmakers to create regulations to protect consumers. However, one state lobbyist for the cryptocurrency industry, the Texas Blockchain Council, stated that they would support policies to root out bad actors, but that “banning cryptocurrency ATMs completely is not very ‘Texan’.”