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NFT scams in UK explode with digital asset's popularity

Vera gallery in our house-1
Some of my grandmother's paintings, known as the main Vera Gallery in our house. (Photo by Kay Bell)

The hubby and I are art fans, primarily of painted works. That's why almost all of our vacations include a visit to our destinations' museums.

Our appreciation of a piece hanging on a wall is why most of our rooms are adorned by framed artworks. Most are signed limited edition print versions of our favorite painters' works. But we also have some originals of a few notable artists, as well as works that are more sentimental but just as lovely, like the image at the top of this post.

Our love of real-life art also is why we don't collect NFTs, or non-fungible tokens. That and the fact I still don't really have an idea of what they are, although this Investopedia article tells me that NFTs "are an ideal vehicle to digitally represent physical assets like real estate and artwork."

Explosion of UK NFT fraud: What I do understand is that NFTs also are a great vehicle for fraud. At least across the pond.

Crooks have exploited the popularity of NFTs in the United Kingdom and in just the last year have scammed investors out of more than £4.2 million ($4.94 million), according to government data analyzed by the UK law firm Pinsent Masons.

That total reported 2021-22 loss amount is 10 times the £420,000 ($493,666) lost in in 2020-21 to NFT scams.

And not only is the pound/dollar amount huge, the actual number of NFT fraud incidents also spiked dramatically in just 12 months.

There were nine such reports in 2020-21, according to His Majesty's Revenue and Customs, or HMRC (the UK tax equivalent of the United States' Internal Revenue Service), figures obtained by Pinsent Masons. In 2021-22, HMRC figures showed 78 reported NFT fraud cases.

Crooks follow popular culture, too: The criminal activity involving NFTs isn't a surprise. Criminals tend to stay on top of what captures people's fancy and then use it against them.

NFT popularity in the United Kingdom exploded in popularity in the first half of the year, with investors snapping up digital artwork, photos, and videos. That sent prices of some assets soaring, attracting the attention of scammers.

Pinsent Masons noted the growing NFT fraud prospect back in March.  

Add to that the unregulated nature of NFT and other digital assets, and the stage was set for the taking of investors.

"Fear of missing out has overridden many investors' skepticism. During the cryptocurrency bubble, almost nothing was 'too good to be true,'" Hinesh Shah, senior associate forensic accountant at Pinsent Masons, told City A.M. paper.

Tax investigators action: British officials, however, are responding.

HMRC in February seized three NFTs connected to a VAT fraud involving 250 fake companies, and coming to £1.4 million ($1.65 million) in fraud.

That was the first UK government seizure of an NFT. Given the growth of NFTs and scammers, you can be sure more such legal actions are on the way.

And you can be sure that the same thing is happening here in the United States.

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