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RELEASE NUMBER 8854-24


CFTC CUSTOMER ADVISORY CAUTIONS THE PUBLIC TO BEWARE OF ARTIFICIAL INTELLIGENCE
SCAMS

January 25, 2024

Washington, D.C. — The Commodity Futures Trading Commission’s Office of Customer
Education and Outreach today issued a customer advisory warning the public about
Artificial Intelligence (AI) scams. Customer Advisory: AI Won’t Turn Trading
Bots into Money Machines explains how the scams use the potential of AI
technology to defraud investors with false claims that entice them to hand over
their money or other assets to fraudsters who misappropriate the funds and
deceive investors.

With the growth of the use of AI in everyday life, scammers are making claims
that it can generate huge returns using bots, trade signal algorithms,
crypto-asset arbitrage algorithms, and other AI-assisted technology. The
prevalence of social media platforms and “influencers” makes it even easier for
fraudsters to spread false information. The advisory warns investors that claims
of high or guaranteed returns are red flags of fraud and that strangers
promoting these claims online should be ignored.

“When it comes to AI, this advisory is telling investors, ‘Be wary of the
hype,’” said OCEO Director Melanie Devoe. “Unfortunately, AI has become another
avenue for bad actors to defraud unsuspecting investors.”

The advisory helps investors identify and avoid potential scams, including a
reminder that AI technology cannot predict the future. It also lists four
important items investors may consider, including researching the background of
a company or trader, before trusting their money to trading bots or trade-signal
providers.

 About the Office of Customer Education and Outreach (OCEO)

 OCEO is dedicated to helping customers protect themselves from fraud or
violations of the Commodity Exchange Act through the research and development of
effective financial education materials and initiatives. OCEO engages in
outreach and education to retail investors, traders, industry organizations, and
the agricultural community. The office also frequently partners with federal and
state regulators as well as consumer protection groups. The CFTC’s full
repository of customer education materials can be found at:
https://www.cftc.gov/LearnAndProtect.

Customers and other individuals can report suspicious activities or information,
such as possible violations of commodity trading statutes and regulations, to
the Division of Enforcement by filing a whistleblower tip or complaint at
www.cftc.gov/complaint. Whistleblowers may be eligible to receive between 10 and
30 percent of the monetary sanctions collected in a successful enforcement
action. All whistleblower awards come out of the CFTC Customer Protection Fund
which is financed through monetary sanctions paid to the CFTC. To learn more
about the CFTC’s Whistleblower Program, go to www.whistleblower.gov.

 The Customer Advisory: AI Won’t Turn Trading Bots into Money Machines is
available in full below and on cftc.gov.

                                                                               
      *****

Fraudsters are exploiting public interest in artificial intelligence (AI) to
tout automated trading algorithms, trade signal strategies, and crypto-asset
trading schemes that promise unreasonably high or guaranteed returns. Don’t
believe the scammers. AI technology can’t predict the future or sudden market
changes.

Case Study: Mirror Trading International

Over about a three-year period, Cornelius Johannes Steynberg, a citizen of the
Republic of South Africa, stole more than $1.7 billion in bitcoin from at least
23,000 people using a few websites, as well as accounts on Facebook, Instagram,
and YouTube.

For as little as $100 in bitcoin, and with “no trading experience required,”
customers could buy into his commodity pool that used a proprietary bot trading
program that guaranteed at least a 10 percent monthly return (or more than 200
percent per year) trading foreign currencies. Customers could refer friends or
work as affiliate marketers and receive referral bonuses. Steynberg also created
fake customer accounts and balances using MetaTrader demo accounts.

In reality, very little money was actually traded. Instead, it operated as a
Ponzi scheme with some money from new investors used to pay older investors and
the rest misappropriated by Steynberg. [See CFTC Press Releases 8549-22 and
8696-23].

Scammers claim AI-created algorithms can generate huge returns—sometimes tens of
thousands of percent—or yield 100 percent “win” rates. These dubious claims have
been made about algorithms that automatically place trades, known as “bots,” and
algorithms that provide buy and sell signals to subscribers, among others.

In recent years, the CFTC has alleged several defendants defrauded customers by
operating or marketing commodity pools, digital assets, or “investment programs”
that promised regular, above-average returns through the use of AI. But, these
promises were false and, instead of getting automatic money-making machines,
customers lost tens of millions of dollars and, in one case, nearly 30,000
bitcoins—worth about $1.7 billion at the time.[1]

Before you trust your money to trading platforms that claim AI-created
algorithms can generate huge returns, you should: 

 * Research the background of the company or trader; conduct a reverse image
   search on key personnel to verify their identities.
 * Research the history of the trading website by checking the age of the domain
   registration at lookup.icann.org. 
 * Get a second opinion. Talk the investment over with a financial advisor,
   trusted friend, or family member.
 * Know the risks associated with the underlying assets. Also consider the
   impact fees, spreads, and subscription costs would have on returns.

Be wary of the hype around AI especially when promoted by social media
influencers and strangers you meet online. You can report fraud to the CFTC and
to the FBI.
 

This article was prepared by the CFTC’s Office of Customer Education and
Outreach. It is provided for general informational purposes only and does not
provide legal or investment advice to any individual or entity. Please consult
with your own legal advisor before taking any action based on this information.
The CFTC cannot attest to the accuracy of information contained in any non-CFTC
references or websites. Reference in this advisory to any organizations or the
use of any organization, trade, firm, or corporation name is for informational
purposes only and does not constitute endorsement, recommendation, or favoring
by the CFTC.

 

--------------------------------------------------------------------------------

[1] For examples of recent cases, see CFTC Press Releases 8803-23, 8697-23,
8621-22, 8549-22, 8510-22, 8493-22, 8438-21, 8115-20 and 8047-19,
https://www.cftc.gov/PressRoom/PressReleases.

-CFTC-




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