New Types of Over-the-Counter Trading Scams Have Emerged! A Comprehensive Look at Fraudulent Practices to Guard Against

In Taiwan, the channels for purchasing cryptocurrency have become very secure and convenient. As long as you buy through legitimate exchanges or trading platforms, there are rarely any irreparable losses. However, due to factors such as transaction volume, price, or privacy, some people choose to engage in over-the-counter (OTC) trading. Many of these unsecured OTC trading methods have become breeding grounds for scams.

Recently, exclusive information has surfaced that some individuals have been altering webpage source codes to manipulate displayed data, recording videos pretending to possess tens of thousands of bitcoins, and then spreading this misinformation on social media. They request buyers to first transfer cash as a prerequisite for engaging in fraudulent transactions. Since the motives behind these actions are currently unclear and there have been no reports of victims, readers are advised not to trust anyone claiming to have large assets and to avoid falling into OTC scams or investment traps.

This article will review some classic social cases to illustrate the deceptive techniques used in OTC trading that must be guarded against. Before delving into these examples, let's briefly explain OTC and its unique characteristics in the cryptocurrency trading market.

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What is Over-the-Counter (OTC) Trading?

Over-the-counter (OTC) trading is essentially a direct transaction between buyers and sellers conducted privately, unlike traditional exchanges, it does not have a transparent order book. Such trading has been prevalent in many financial markets for years, favored by institutional investors and hedge funds for large transactions.

In the world of cryptocurrencies, OTC trading is often facilitated through trusted intermediaries or platforms developed by exchanges. It is also common to match buyers and sellers through chat groups with a trusted third party.

Research institutions have indicated that the OTC market for cryptocurrencies is at least 2-3 times larger than that of exchanges, and due to many exchanges using omnibus accounts, not all transactions are immediately recorded on the blockchain. Some analysts believe this is why the cryptocurrency market is difficult to predict and highly volatile.

Three Fraudulent Schemes to Watch Out For

1. Fabricated Transaction Details by Buyers

• Incident Date: Since May 2018
• Amount Defrauded: Over 4.39 million NTD

A report by Liberty Times revealed that a drug trafficking suspect surnamed Lin, using multiple fake identities since May, engaged in cryptocurrency trading groups on Facebook or LINE, deceiving sellers by falsely claiming to purchase Bitcoin, Ethereum, USDT, among others.

Pretending to be a buyer with "fabricated transaction detail screenshots" to gain the seller's trust, once the seller transferred the coins, they would block the seller. If a seller noticed the money had not arrived and hesitated to transfer the coins, they would use tactics like "both parties will report to the police" or "the seller's account will be frozen" to manipulate them.

This led sellers to transfer the coins due to fear of trouble, not wanting to escalate the situation, or mistakenly believing there was an error on the bank's end. It wasn't until May 2, 2019, that the police announced the arrest, with 53 victims and total financial losses exceeding 4.39 million NTD.

2. OTC Trader Stages Robbery

• Incident Date: April 2019
• Amount Defrauded: 14 million NTD

According to an ETtoday report, a wealthy businessman in Hsinchu purchased Bitcoin through a friend named Peng, referencing a price of 160,000 NTD per coin, negotiating to buy 100 coins for a total of 14 million NTD. During the transaction, Peng brought four associates to protect the cash, and two of them unexpectedly stole the 14 million NTD in cash, escaping in a taxi with accomplices.

After investigation, the police found that the four associates were all accomplices who planned the robbery without Peng's knowledge. The police successfully solved the case within 10 hours after the incident, and 13.8 million NTD was also recovered.

3. Exploiting Greed

• Incident Date: May 2019
• Amount Defrauded: 9.5 million NTD

Apple Daily reported that a trader surnamed Lin from Taichung met a 37-year-old man named Li at a banquet two months prior. Li suddenly called Lin in May, claiming his friend held a large amount of Bitcoin and offered to facilitate a purchase at a discounted price of 200,000 NTD per coin.

At the time, Bitcoin was around 218,000 NTD, with a price difference of up to 18,000 NTD per coin. Thinking it was profitable, Lin discussed with three friends and collectively invested 9.5 million NTD to purchase 47.5 coins. The two parties arranged to meet for the transaction in a hotel room 812 late at night on the 10th day.

During the on-site transaction, Li claimed the seller preferred anonymity, so he signed a 9.5 million NTD promissory note, provided his ID, took the cash for the seller to confirm the amount, and then transferred the Bitcoin to Lin's account.

Lin requested Li to download a location tracking app to monitor his movements. After Li left with the large sum and got into a Toyota as planned, he drove around the city before heading towards the coast, changing cars at a gas station in Shalu District, turning off the tracking system, and evading surveillance.

Lin realized something was amiss, searched with his assistant but to no avail, only then discovering he had been swindled. While Lin could seek payment from Li through the promissory note in court, the latter might have already vanished and liquidated his assets.

Public Exchanges Are Safer

Regardless of the OTC platform used, there are inherent risks. Moreover, the cryptocurrency market is still relatively small compared to traditional finance, lacking major investors. Large public transactions can easily cause market panic, making OTC primarily used by institutional investors. For safety, it is advisable for small traders to conduct transactions through public exchanges.