Fraudsters have exploited the rapid rise of Non-Fungible Token (NFT) in the UK and have scammed investors out of more than £4.2m in the past 12 months, according to government figures.
The number of individual fraud reports relating to NFTs has surged by almost nine times from only nine incidents reported in 2020/21 to 78 in 2021/22, according to HMRC figures obtained by law firm Pinsent Masons, while the value of the scams has jumped from £420,000 last year to over £4.2m.
NFTs, which offer a blockchain-recorded ownership of digital assets, exploded in popularity in the first half of the year as investors snapped up digital artwork, photos and videos, sending prices of some assets soaring.
The rapid rise and unregulated nature of the sector has left users vulnerable to fraud, however. Holders of certain types of assets are able to drive up prices artificially and sell the assets onto unwitting investors, while some investors have been hit by so-called ‘rug pull schemes’, where crypto develop attract early cash into a scheme before quickly abandoning it.
Hinesh Shah, Senior Associate Forensic Accountant at Pinsent Masons said fraudsters had exploited investors’ enthusiasm for “get rich quick schemes based on digital assets.”
“Fear of missing out has overridden many investors’ scepticism. During the cryptocurrency bubble almost nothing was ‘too good to be true’,” he said.
“The speed at which the NFT market has grown has taken enforcement bodies by surprise and a lack of clear regulation on the market means authorities are unsure if it falls within their remit.”
Fraudsters have viewed this as an opportunity to swoop on customers, he added.
HMRC seized three NFTs for the first time in February in connection with a VAT fraud involving 250 fake companies, in a fraud worth £1.4m. HMRC secured a court order to detain crypto assets worth £5,000 and the NFTs that had not been valued at the time of seizure.