SOUTH HADLEY — One South Hadley business owner put a cryptocurrency ATM in his store to serve as a source of passive income. They get $200 a month as a rental fee and a cut of each withdrawal. It seemed like a simple revenue stream to offset a bad sales day.
Until one of his employees received a call from a scammer posing as the owner, demanding that they put $11,000 from the company’s safe into the cryptocurrency ATM. The employee fell for the scam, and South Hadley Police have not been able to recover the funds.
This is just one example of South Hadley residents losing thousands of dollars to a fraud scam involving a cryptocurrency ATMs. One resident lost $48,000. Another lost $4,900. All of it incredibly difficult to locate, authorities say.
“We’re finding that these are irreversible, untraceable, nearly impossible for us to investigate, but we spent dozens and dozens and dozens of hours [investigating],” Police Chief Jennifer Gundersen told the South Hadley Select Board on Oct. 7.
The scams have grown into a nationwide issue. Middlesex County Sheriff Peter Koutoujian told legislators on Oct. 7 that there has been “a surge in these scams nationally,” with about 11,000 complaints to the FBI in 2024 specifically reporting scams involving crypto kiosks. Those victims lost a combined $247 million, he said, a 99% increase in the number of complaints and a 31% increase in reported victims’ losses from 2023.
The Joint Committee on Financial Services held a hearing on Tuesday regarding legislation to establish consumer protection requirements for machines that allow people to buy or sell cryptocurrency for cash (H 1247 / S 707). Operators would have to be licensed as money transmitters, register each kiosk with the commissioner of banks, and file quarterly reports with the locations of their kiosks. The bill would impose a daily transaction limit of $1,000 per customer.
But while the bills make their way through the Legislature, Gundersen is proposing South Hadley adopt a townwide ordinance that bans cryptocurrency ATMs. Based on the same initiatives passed in Waltham and Gloucester, the ordinance would give business owners 30 days to remove the cryptocurrency ATM before issuing a $300 fine per day.
The Select Board supported the measure, which now moves to a vote by Town Meeting members at the Nov. 5 special Town Meeting.
Currently, there are only two business in town with these machines, but Gundersen wants to prevent their prevalence from growing.
“I spoke today to the Waltham police chief, and they went from four machines to 14 machines in a couple of months,” Gundersen said. “Waltham did report that some of the store owners very likely knew that there was a senior citizen in their store being scammed, but because they were going to get a portion of that money, they actually assisted them with their transaction.”
Northwestern Assistant District Attorney Nicholas Atallah said he receives a couple requests a month from municipal police departments to help investigate scams involving cryptocurrency ATMs.
The scams work like this: A person calls a victim and poses as a family member, friend, government official or law enforcement officer. Some even pretend to be federal agents moving money from a compromised bank or from stolen Social Security accounts.
They are told to visit a crypto ATM, which look a lot like a traditional banking machines, but instead of dispensing cash from one’s bank account, the majority of these machines allow customers to deposit cash and then convert it into cryptocurrency. That currency can then be sent to a virtual wallet anywhere in the world. According to BitCoin Depot, there are about a dozen crypto ATMs in Hampshire and southern Franklin counties
“Sometimes people are told the ATMs were government ATMs by whoever they were communicating with, so they were not really aware of what they were doing,” said Anita Wilson, director of the Northwestern DA’s Consumer Protection Unit. “They thought they were submitting their money into an ATM that would protect them rather than transferring it into cryptocurrency.”
The digital asset cryptocurrency has little purchasing power in itself, so automated transaction machines in gas stations, grocery stores and convince stores provide a place to transfer those funds from virtual money into hard cash. Business owners with the machine receive a $200 rental fee per month. Typically, the store owner and ATM take a cut of whatever money is withdrawn.
“We understand that cryptocurrency machines, ATMs, can be used for legitimate purposes,” Gundersen said. “But people that are in cryptocurrency aren’t using these machines because they charge a fee of between 10% and 25%. Nobody that’s in cryptocurrency wants to pay that fee.”
Atallah explains that while it’s possible to tract these transactions, it’s incredibly difficult.
“The scammers, once they get these funds, they move it right away and so if we don’t get a report within 36 hours, sometimes there’s no chance of freezing these funds,” he said.
The only evidence of a transaction on the blockchain, or digital ledger, is a 25-character long account number and the amount transferred. Scammers can break up the money into different accounts much faster than law enforcement can trace the transactions. Once the money leaves the state, the DA’s office has no jurisdiction to issue a search warrant.
Waltham banned cryptocurrency kiosks last month, but Waltham Police Detective Michael Maher said there are victims “that are directed to other cities and towns to use the kiosks there.” And even once someone realizes they have been victimized, Maher said it’s exceedingly difficult to recover any of the lost funds. Out of about 60 cases he’s worked on in recent years, he said he’s been able to recover a portion of the lost funds in “maybe four” instances. Atallah managed to find funds for two of his cases.
The state bill also seeks to guard against these types of scams. The kiosks would need to feature a disclosure alerting users to how frequently the terminals are being used in scams, provide all customers with printed receipts, offer live customer service, use blockchain analytics to block fraudulent users, and employ a full-time compliance officer, according to a committee summary.
“The best way to address crypto fraud is to prevent it in the first place. That’s got to be a part of the toolkit here, and a good place to start is with the more than 600 crypto kiosks that we have here in the commonwealth, because they are an entry point,” Glenn Kaplan, chief of the Insurance and Financial Services Division in the attorney general’s office, said in support of the legislation.
Some cryptocurrency kiosks in Hampshire County have put up signs near the machine warning users of possible scams. However, they continue to occur.
“We’re seeing cryptocurrency scams proliferate and that lots of scams are trying to drive the money into crypto, both the phone scams or long-term romance scams,” Atallah said. “We’re going to see a proliferation of crimes involving cryto and we need legislation that’s up to the modern challenge of combating these crimes.”