US State Regulator Proposes Strategy Against AI-Driven Digital Asset Fraud

According to Cointelegraph, a U.S. state securities regulator is preparing to propose a strategy aimed at safeguarding Americans from a rise in digital asset fraud, which is increasingly being driven by sophisticated artificial intelligence tools. Claire McHenry, the deputy director of the Nebraska Department of Banking and Finance and president of the North American Securities Administrators Association (NASAA), is scheduled to present her testimony before the Securities and Exchange Commission (SEC) Investor Advisory Committee on March 6. McHenry's testimony will emphasize a notable increase in digital asset fraud, with scammers utilizing AI, social media, and cryptocurrency ATMs to target retail investors in the United States, particularly seniors. The NASAA's 2024 Enforcement Report indicates that digital assets were more frequently involved in investigations and enforcement actions than any other financial product or scheme, including stocks, Ponzi schemes, internet-based fraud, and promissory notes. McHenry's prepared remarks highlight that states are witnessing a growing number of complaints, investigations, and enforcement actions related to digital assets, with this year's survey results showing more investigations and actions tied to digital assets than any other product or scheme. AI tools are significantly contributing to making scams more convincing, McHenry noted, urging regulators to move away from relying solely on "tips and tricks" and instead focus on enhancing media literacy. A renewed emphasis is being placed on older investors and the role of cryptocurrency ATMs in financial fraud. Scammers often persuade victims to deposit cash into crypto ATMs, collecting it in the form of cryptocurrencies. McHenry pointed out that victims of financial fraud are often sensitive to how these scams are perceived, which may deter many from reporting such crimes. She stressed the importance of avoiding victim-blaming language and placing the blame on the perpetrators to rebuild confidence and encourage reporting. In Nebraska, a staggering 98% of the money sent through one cryptocurrency ATM company was linked to scam transactions. McHenry's testimony also highlights the disproportionate impact of crypto fraud on older Americans, particularly in relation to tech support scams and investment scams. These older investors are tempting targets as they have accumulated wealth over their lifetimes but may lack the technological savvy needed to detect and avoid scams. Her testimony underscores the complexity of fraud prevention due to evolving technology and financial innovations, emphasizing the need for regulatory collaboration, stronger AI fraud detection, and improved investor education to protect Americans from AI-driven and crypto-related fraud.