It took a global web of law enforcement and crypto giants, including the Secret Service, FBI, Coinbase, and Tether, over 18 months to crack down on one of the most insidious scams in recent memory: the pig butchering scheme. Now, in a rare win for victims, authorities are working to recover and return more than $225 million stolen through this elaborate cryptocurrency con.
While traditional banks weren’t directly involved in the investigation, they remain a key piece in how these fraudsters move and hide stolen funds, often without raising suspicion until it’s too late. So, what is pig butchering, and how might your bank be involved? Here’s what you need to know.
What is Pig Butchering?
Pig Butchering is a multi-billion-dollar a year, multi-national criminal enterprise. It is hard to track crypto transactions. So, estimates of the extent of the scheme vary. Although the FBI’s ”Internet Crime Report 2024” shows $5.8 billion in online losses, much of that is from pig butchering.
The macabre name for this fraud comes from the practice of fattening a pig before it is slaughtered. The scheme begins with a text or social media message, often accompanied by an attractive profile photo.
The sender may feign a relationship, texting something like: “It was so good to catch up with you at the (wedding, funeral, reunion, etc.). They may pretend to have reached you by mistake with a message like this: “Uh oh, I may have the wrong number!”
From these casual beginnings, the scammer works to develop a relationship through friendly chat. Once they gain your trust, the scammer goes for your wallet. Your investment may start out small, but the fake return is always large. At that point, the scammer is playing on your greed as well as your trust.
Following The Money
Transactions almost always begin with the victim transferring money from their bank account to a bank account controlled by the scammer.
The scammers convert their ill-gotten gains into cryptocurrency as a means of laundering or hiding where the money came from. The cryptocurrency is then converted into a traditional or fiat currency, such as U. S. dollars, for deposit into the crook’s bank account.
Often, the bank accounts used by scammers to receive money are legitimate accounts owned by real people or businesses. These accounts can easily be “rented” for a fee on the black market.
How Banks Are Used
Pig Butchers use legitimate bank accounts to receive and then quickly transfer money to crypto accounts. Frequently, the legitimate account holder does not even know these transactions are taking place.
Telegram, a messaging platform, features Chinese language channels that sometimes promote access to legitimate U. S. bank accounts, according to a story in ProPublica. Questioned about the practice by ProPublica, Telegram issued a statement.
“Telegram does not allow money laundering or fraud on its platform,” the statement read. “Telegram’s terms of service expressly forbid money laundering, scams and fraud and such content is immediately removed whenever discovered.”
Beyond social media ads, other means of controlling legitimate bank accounts include:
- Money Mules – As Victims. These individuals are convinced to open a bank account to receive payments from victims, then transfer that money to the scammers. Usually, these people are unaware they are facilitating a scam. They are often recruited through a “work from home” promotion or a romance scam.
- Money Mules – As Willing Participants. Other people are persuaded to join in the crime in return for a portion of the take. They knowingly set up multiple bank accounts in their name or the name of a shell company.
How Crypto Firms and The Government Teamed Up
The joint effort that resulted in the seizure of $225.3 million in funds scammed from investors was the work of both cryptocurrency heavyweights and federal law enforcement.
“This seizure of $225.3 million in funds linked to cryptocurrency investment scams marks the largest cryptocurrency seizure in U.S. Secret Service history,” said Special Agent in Charge Shawn Bradstreet of the U.S. Secret Service’s San Francisco Field Office. “These scams prey on trust, often resulting in extreme financial hardship for the victims.”
The crackdown began when Tether, an American stablecoin, froze 39 wallet addresses holding $225.3 million. The firm believed the money was tied to a pig butchering racket.
A stablecoin is a type of cryptocurrency linked to the value of a fiat currency. In Thether’s case, that is the U.S. A cryptocurrency wallet address is a unique series of numbers or letters used to identify an account.
Coinbase Joins In
The USSS stepped in after Tether froze the accounts. The federal agency traced funds back to 140 accounts at the OKX cryptocurrency exchange. The agency was added by Coinbase, a leading American cryptocurrency exchange.
“Sitting alongside USSS agents, Coinbase team members conducted a multi-day effort to trace millions in cryptocurrency transactions back from illicit wallets,” according to Coinbase.
Subsequently, Tether permanently removed the frozen tokens from circulation. Then, new UDSTs were issued to replace the removed tokens and placed in a wallet controlled by the USSS.
Vulnerability of Banks And Crypto
Cryptocurrency and crypto exchanges are particularly vulnerable to use by scammers. That is due to a lack of regulation.
Tether accounts for 84% of the total volume of transactions linked to scammers, according to a University of Texas report.
However, safeguards by banks are not much better.
The Bank Secrecy Act, passed in 1970, was designed to combat money laundering. It requires financial institutions to know their customers and report suspicious transactions.
Nevertheless, the law is short on specifics. As a result, banks are left to institute safeguards on their own.
Sometimes It Is Just Greed
One weakness in any regulatory network is the frailty of the humans entrusted to safeguard customers’ money. A recent case demonstrates that.
Shan Hanes was the CEO of Heartland Tri-State Bank in Elkhart, KS. The community of 1,888 people is the county seat of Morgan County in the southwest corner of the state. Hanes was a respected member of the community. He also had access to millions of dollars in deposits.
The banker had come to trust a pig butcher he met online. As a result, he began investing in what he thought was a cryptocurrency. It started slowly – a few thousand dollars in 2022. By 2023, he had wired over $47 million in bank funds to the fraudsters. At that point, he could send no more. Nearly all the bank’s funds were gone.
A state bank regulator discovered the fraud. As a result, the bank was closed, and the FBI was called in.
After being found guilty of embezzlement, Hanes was sentenced to 293 months in prison last August.
“Hanes’ greed knew no bounds. He trespassed his professional obligations, his personal relationships, and federal law. Not only did Shan Hanes betray Heartland Bank and its investors, but his illegal schemes also jeopardized confidence in financial institutions,” said U.S. Attorney Kate E. Brubacher.
Depositor funds were insured by the FDIC. As a result, they did not lose money. In addition, the FBI was able to recover $8 million in bank shareholders’ funds. The bureau was able to track those funds to a wallet address.
“These were not Silicon Valley investors,” said Special Agent Sage Hemmert. “These were regular people from southwest Kansas. And a lot of them had their net worth tied up in this bank.”
Protecting Yourself From Pig Butchering
The Secret Service offers some ways you can guard against fraud, such as pig butchering. Those include:
- Be wary of people you meet on dating websites or social media who offer you unsolicited financial, investment, or cryptocurrency advice.
- Be cautious of unsolicited investment opportunities.
- Always question the legitimacy of projects that sound too good to be true.
- Shield yourself from scenarios in which you are encouraged to open an account on a cryptocurrency trading platform and transfer funds from your bank account to invest in cryptocurrency projects.
- Never share personal financial information with individuals you have not met in person. In addition, be wary of high-pressure sales tactics.
- Consult the websites of federal and state regulatory authorities and online corporate records concerning any proposed investment, investment firm, or anyone representing themselves to be a broker or similar.
- Conduct searches via Internet search engines to attempt to identify any online reports flagging particular investment or cryptocurrency projects of interest as scams.
- Request to review financial statements, annual reports, or audit results for any proposed investment.
- Warning signs that you are a victim of a scam include notifications, messages, or websites indicating that you have made large amounts of money in a short time period.
- Red flags include perceived “friends” or romantic partners who you have met online but who can seemingly never meet in person and avoid showing themselves on video calls.
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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