Despite reported figures for NFT-related fraud still only being in double digits, its exponential growth shows that inexperienced traders are being drawn to the growing market.

Typical scams in this space include fake or non-existent NFTs sold by fraudsters who do not have ownership rights to the underlying artwork or content.

Hinesh Shah, senior associate forensic accountant and financial crime investigator at Pinsent Masons, argued that fraud would continue to surge in the space this year.

“Genuine stories about the windfall profits individuals have made on NFT investments makes the more outlandish claims made by fraudsters, to lure investors, seem credible,” he added.

“Widespread media coverage of the NFT boom, like the cryptocurrency boom, is attracting consumers who have very little investment experience and therefore aren’t taking basic steps such as checking if an NFT is actually an NFT.”

The reason that fraudsters can successfully execute many of these scams is down to the fact that the majority of NFT marketplaces don’t have the resources to conduct due diligence on the legitimacy of many of the works for sale, according to Pinsent Mason.

Other examples of NFT-fraud include artists artificially inflating prices by selling NFTs to themselves multiple times to create fake purchase histories.

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Jennifer Craven, Pinsent Masons senior associate and civil fraud and asset recovery specialist, argued that London is increasingly becoming a favoured jurisdiction in which to hear NFT fraud claims.

“English Courts have quickly answered complicated legal questions concerning whether digital tokens can be classified as property. They are also more willing to treat fraud cases urgently – some cases come before a High Court Judge far quicker than is possible in other jurisdictions,” she explained.

“While the police and other enforcement agencies aren’t always able to help, a civil claim can be a more efficient and effective means of recovering lost money.”

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