7 On Your Side report on $50K crypto scam catches CA officials' attention
ROSSMOOR, Calif. (KGO) -- A recent 7 On Your Side investigation is catching the attention of California state regulators. An 83-year-old East Bay woman believed her grandson was in trouble and lost nearly $50,000 to a crypto scam. The crypto scam happened nearly a year after Gov. Newsom signed legislation into law limiting the amount any one customer can accept or give out at a crypto kiosk. Now, there are questions about how or if the scammers circumvented that law.
In September, 7 On Your Side Investigates brought you the story of an 83-year-old East Bay woman named Lois who lost nearly $50,000 to a scam at this Coinme kiosk in Rossmoor.
"A man said I have your grandson, he was so distraught and crying," said Lois at the time.
PREVIOUS REPORT: 83-year-old East Bay woman loses nearly $50K in Coinstar, Coinme scam
Over the course of three days in August, Lois fed hundred-dollar bill after hundred-dollar bill into this machine believing she was paying her grandson's bail and legal fees while someone on the other end of the phone gave her the cryptocurrency account numbers to send the money.
"They just destroy people's lives, they're despicable people," said Lois.
"The department became aware of ABC7's reporting on this matter," said John King, Department of Financial Protection and Innovation.
King is an attorney in the enforcement division for the Department of Financial Protection and Innovation.
"I saw it personally on the news," said King.
DFPI could not confirm nor deny an investigation into Lois' situation.
MORE: Angry CA drivers say DMV lookalike website 'NeedTags' tricks them to paying extra fees
Lisa, Lois' daughter, says the agency contacted them.
"They were just interested in the whole process of the transaction. What kind of information was asked for," said Lisa.
Lisa says her mom provided DFPI with these voucher receipts generated by the Coinme machine after every thousand dollar transaction.
A California law sets daily limits on the amount any one customer can accept or give out at a crypto kiosk.
"One of the key protections in our new crypto asset law is that a crypto kiosk or crypto ATM as they're also known cannot accept or give out more than $1,000 in a single day," said King.
By email, Coinme tells 7 On Your Side Investigates, "Coinme complies with the $1,000 transaction limits imposed by California law. The scammer, using a sophisticated ruse, exploited this individual by convincing her to deposit funds into over 50 different accounts over several days in order to circumvent Coinme's safeguards..."
The author of the legislation, California State Senator Monique Limon tells 7 On Your Side in an emailed statement, the law "...does not make exceptions based on how many accounts that customer may use to transact."
"I don't know that there's a loophole," said Robert Herrell, Consumer Federation of California Executive Director.
Herrell is the Executive Director of the Consumer Federation of California, a major proponent and sponsor of the legislation.
"These crypto kiosks, they're not humming 24/7 so for someone to stand there hours on end presumably to do $1,000 at a time - that's very concerning," said Herrell.
In its emailed statements to 7 On Your Side Investigates, Coinme writes in part, "We ...encourage all users ...to pay attention to the three warning screens presented during each transaction on Coinme-enabled Coinstar kiosks."
The company also says users must complete an identity verification process as part of its Know Your Customer program.
MORE: Bay Area man out $3.2K after IRS check stolen, cashed by thief using Wells Fargo ATM
As for how the scammer's accounts got past KYC, Coinme writes in part, "...scammers can sometimes bypass safeguards using stolen identity information from data breaches and phishing scams. Scammers also recruit 'mules' who knowingly or unknowingly allow their identities to be used to create accounts, making it harder to detect suspicious patterns."
There is no Know Your Customer at the kiosk according to Coinme, meaning Lois didn't have to verify her identity.
"I think the bothersome thing for me is that there was no effort to identify who was sending this money," said Lisa.
"She was never asked who she was and she was not asked to open an account with Coinme before the transactions began," she continued.
That's because according to Coinme, "the accounts the victim used were not created at the kiosk but by the scammer, who utilized criminal methods to use multiple accounts."
As for 'who' was collecting the money on the other end, Coinme writes, "In the event of suspicious behavior, our systems trigger additional review steps and alert our compliance team, potentially leading to account suspension or further investigation."
MORE: Bay Area man loses life savings, owes more than $30,000 in taxes after scam
In this case, it was Lois who contacted Coinme to alert them about the scam.
Coinme says the scammer circumvented the company's safeguards. Also that the company is continually enhancing its technology and processes to stay ahead of increasingly complex tactics bad actors use.
Coinme says the scammers' accounts have now been permanently closed and that the funds are unrecoverable because transactions are instantly sent outside of Coinme's platform.
"Fraudsters and scammers are always advancing their techniques and trying to stay ahead of the law," said King.
State Senator Limón writes, "It is my understanding that the Department of Financial Protection and Innovation is investigating this case. I will refrain from speculating on the outcome of an ongoing investigation, and I expect a briefing from our law enforcement agency once their work is complete."
"I think it definitely brings to light that some changes need to be made," said Lisa.
