Rug pulls
By definition , a rug pull is a type of crypto scam that occurs when a developer or creator advertises and markets their project ’ s token or coin before disappearing with the funds . Many of these projects appear legitimate before the founders “ pull the rug out from underneath investors ,” 2 also known as being “ rugged .”
According to a Solidus Labs report , 117,629 rug pulls occurred in 2022 , a 41 % increase from 2021 . 3 The report also noted that roughly 350 scam tokens were created , on average , per day . 4
Rug pull creators can be ingenious , like many professional money launderers . These projects appeal to investors as promising investments , with advertisements of doubledigit returns , along with social media ads , often touting celebrity endorsements of other crypto projects .
The report highlights that these fraudsters have stolen from roughly 2 million investors and users , surpassing the number of creditors named in the bankruptcies of FTX , Celsius and Voyager Digital when combining all three entities .
Rug pull typologies
When consistently reviewing white papers and organizational structures of these projects and their entities , typologies become more obvious . Let us look at a few below :
1 ) Template-based websites with limited functionality : This might seem obvious , but once a fraudster has luck with one rug pull scam , they tend to use the same website design template repeatedly . According to Chainalysis , 5 rug pull scams tend to use “ identical text copy ” within the website of other indicted crypto scams , such as customer testimonials and even street addresses . Anti-money laundering ( AML ) professionals should always attempt to use the website as the user would , with a close eye on functionality .
2 ) Boilerplate AML policies : As mentioned earlier , fraudsters are clever . Once going through onboarding approvals at crypto exchanges , fraudsters become aware of what documentation is required for account approval to launder proceeds and show legitimacy . One of the most common red flags with rug pulls is copied-and-pasted AML directives and language , even with different company or exchange entities still mentioned throughout the document . When reviewing the AML policy for a potential rug pull , examine these policies carefully .
3 ) Limiting withdrawals : Any public claim of withdrawal or trading limits needs to be taken very seriously . According to Finbold , 6 users will be lured into a new crypto trading company with the mentioned attractive social media advertisements , while the fraudster disables withdrawal functions with vague bot-like customer service responses . Blockchain analysis firms can assist any institution in seeing where proceeds are being sent . AML professionals can also use block explorer programs , such as Etherscan , in reviewing the wallets of concentrated project owners .
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