AI crypto trading bot scams: why "guaranteed" AI profits are a red flag

“Our AI trading bot has never had a losing month.” “Let artificial intelligence trade crypto for you: 2% a day, no experience needed.” Pitches like these have spread across social media, messaging apps and online ads, and US regulators have been warning about them since at least January 2024.

This guide explains how AI trading bot scams work, the biggest case the CFTC has brought, the newer tricks that use AI itself, and the checks regulators recommend before you hand over any money.

What regulators are warning about

On 25 January 2024, the US Commodity Futures Trading Commission (CFTC) issued a customer advisory with a blunt title: “AI Won’t Turn Trading Bots into Money Machines.”

According to the CFTC, fraudsters are exploiting public interest in AI to promote:

• trading bots, algorithms that automatically place trades;
• trade signal services, algorithms that send buy and sell signals to subscribers;
• crypto-asset trading and arbitrage schemes.

The common thread is the promise of unreasonably high or guaranteed returns. The CFTC says scammers claim AI-created algorithms can generate returns of tens of thousands of percent, or a 100% “win” rate. Its response: AI technology can’t predict the future or sudden market changes.

The same day, the SEC’s Office of Investor Education and Advocacy, the North American Securities Administrators Association (NASAA) and FINRA published a joint article on AI and investment fraud. It warns that numerous unregistered and unlicensed platforms and individuals are promoting AI trading systems with unrealistic claims such as “Our proprietary AI trading system can’t lose!”

The biggest case: Mirror Trading International

The CFTC uses one case to show what can happen. According to the regulator:

• Over about three years, the founder of Mirror Trading International (MTI), based in South Africa, took more than $1.7 billion in bitcoin from at least 23,000 people, using a few websites and accounts on Facebook, Instagram and YouTube.
• For as little as $100 in bitcoin, with “no trading experience required”, customers could join a pool that supposedly used a proprietary bot trading program, which guaranteed at least 10% a month, or more than 200% a year, trading foreign currencies.
• Customers could earn referral bonuses for bringing in friends or working as affiliates.
• The operator created fake customer accounts and balances using demo trading accounts.
• In reality, very little money was traded. The scheme worked as a Ponzi scheme: some money from new investors paid older ones, and the rest was misappropriated.

In April 2023, a US federal court ordered the founder to pay $1,733,838,372 in restitution and a civil penalty of the same amount, the highest civil monetary penalty ever ordered in a CFTC case. The CFTC called it the largest fraudulent scheme involving bitcoin charged in any of its cases. It also warns that restitution orders may not result in victims getting their money back, because the wrongdoers may not have enough funds or assets.

How the scams typically work

The details vary, but the pattern often follows the one FinCEN describes for “pig butchering” investment scams:

1. The hook. An ad, an influencer or a new online contact talks about an AI bot that makes steady profits. Screenshots of gains are everywhere.
2. A small start. You’re invited to deposit a small amount, often in crypto. FinCEN notes that victims may even be allowed to withdraw a small amount, to build confidence.
3. The dashboard. A professional-looking platform shows your balance growing every day. In schemes like MTI, those numbers can be invented.
4. Bigger deposits. You’re encouraged to add more, upgrade to a “premium” bot or recruit friends for bonuses.
5. The trap. When you try to withdraw, you’re told to pay “taxes” or “early withdrawal fees” first, which FinCEN describes as one of the final stages of the scam.

See pig butchering scams for that scam in detail.

AI as a weapon, not just a buzzword

The joint SEC, NASAA and FINRA article points out that fraudsters also use AI tools themselves:

• Deepfake video and audio. AI can clone voices, alter images and create fake videos. The regulators mention fake audio used to convince older investors that a grandchild is in distress, and deepfake videos of company executives announcing false news.
• Realistic fake websites and marketing for fake investments.
• Impersonation of regulators and government officials, and of real investment professionals using phony websites.
• Celebrity endorsements and “finfluencers.” A famous face recommending an investment doesn’t make it legitimate, and the endorsement itself may be fake.

The regulators suggest agreeing a password or phrase with family members to verify their identity in an emergency.

Red flags

• Guaranteed returns, or fixed daily, weekly or monthly profits.
• Extraordinary numbers: hundreds or thousands of percent, or a 100% win rate.
• “No experience needed” and “let the AI do everything”.
• Referral bonuses or pressure to recruit others.
• Unregistered platforms or promoters.
• Promotion by strangers online or influencers. The CFTC specifically warns about AI hype promoted by social media influencers and strangers you meet online.
• Fees or taxes demanded before a withdrawal.
• Payment only in crypto.

Checks to make before trusting a bot or signal service

The CFTC recommends four steps:

1. Research the company or trader. Do a reverse image search on the people involved to check they’re real.
2. Check the website’s history, including how old the domain registration is, using the public lookup at lookup.icann.org. A platform claiming years of results on a domain registered last month is a warning sign.
3. Get a second opinion from a financial advisor, a trusted friend or a family member.
4. Know the risks of the underlying assets, and the effect of fees, spreads and subscription costs on any returns.

The joint SEC, NASAA and FINRA article adds a fifth: check registration. Securities laws generally require investment firms, professionals and platforms to be registered, and a lack of registration should prompt more investigation before you invest anything. In the US, use the SEC’s search tool on Investor.gov and your state securities regulator; in Canada, the Canadian Securities Administrators’ National Registration Search. For crypto platforms, see how to check a crypto exchange is registered.

Don’t let AI pick your investments either

The same regulators caution against relying solely on AI-generated information to make investment decisions. AI tools may draw on data that’s inaccurate, incomplete or out of date, or even on false information spread to manipulate prices. Use them as a starting point at most, not as a crystal ball.

If you’ve already put money in

• Stop depositing, and don’t pay any fee to unlock a withdrawal.
• Save everything: the website address, wallet addresses you sent to, transaction IDs, messages and screenshots.
• Report it. The CFTC says you can report fraud to the CFTC and the FBI. In the UK, report to Report Fraud; in Canada, to the Canadian Anti-Fraud Centre. See crypto scams and where to report them.
• Beware of recovery offers. People who have lost money are often targeted again. See crypto recovery scams.
• Check the tax position of your loss. See crypto scam losses and tax.