The Pig Butchering scam typically begins with a fairly ordinary message that arrives from a person you don’t recognize. It might be a text message that looks like a wrong number, or it might be a message that arrives on LinkedIn, Instagram, or even an online dating site. Sometimes it is even a scam comment under a YouTube video that you have been watching. A lot of people receive these messages and ignore them, either suspecting a scam or they just don’t feel like responding. Those who do reply find the (usually attractive) stranger wants to befriend them. Eventually, the victim is lured into an online friendship or romance and learns that the person messaging them is quite wealthy – later it comes out that it is due to their expertise trading cryptocurrencies. The scam flourished during the covid years at a time when people were stuck at home bored, and it didn’t seem so crazy to run into someone who had made a fortune trading crypto - after all the news

was filled with stories like that at the time.
Pig butchering – as a scam - is quite different to the Nigerian Prince scam, which everyone has heard of at this point, as there is no obvious upfront pitch and a lot of time spent developing a relationship. In ‘Number Go Up’ by Zeke Faux, he described stringing along one of these scammers as part of the research for his book on crypto fraud. The 32-year-old divorcee who started texting him, chatted for a while, and befriended him before she began to send him charts of bitcoin returns demonstrating her trading skills. When he expressed curiosity, she told him that he wasn’t ready to trade like her yet and recommended that he read some books on bitcoin and investing first. She chatted away for days never asking him to send her any money. Eventually, after he mentioned that he would love to someday buy an expensive car, she told him that if

she taught him how to trade the car would be 
affordable. She then sent him a link to a crypto   exchange, suggesting that he open an account 
and she would tell him when to buy and sell,   so that he could multiply his savings quickly.
Once he opened an account, he had to fund it using   a stablecoin called tether, which she explained 
was safe as it traded 1:1 with the US dollar.   He started with $100 dollars – which converted 
into 81 Tether – because – ya know – crypto   transaction costs… She explained that he 
really needed to fund the account with at   least $500 dollars to get going – she even called 
him up to help him fill out the online forms.  Zeke, unfortunately, never got to multiply 
his savings and buy the car of his dreams,   as when he explained that he was an investigative 
reporter, she hung up, her online profile   disappeared, and he never heard from her again.
A few of my viewers possibly think that Zeke was

wise to get his story and escape after only losing a hundred dollars, but who knows, maybe his FUD prevented him from anteing up the $500 and getting the Cybertruck of his dreams. We will never know… According to a BBC documentary on the topic, the scam is known as Pig Butchering after the practice of farmers fattening hogs before slaughter. According to the BBC, the scammers call themselves dogs. The BBC then seem to have given them dog masks to wear while being interviewed. In my opinion they missed the chance of asking if there is anything else that people call them, and getting them to wear much funnier masks, but maybe that’s why the BBC would never hire me… Eh Patrick – the people in HR want to chat with you about the origami masks that you have been making… Anyhow, the BBC documentary showed how a Boston Lawyer with terminal cancer was scammed out of two and a half million dollars. Even worse,

a Kansas Bank CEO recently ended up in prison after he lost 50 million dollars of the bank’s money to a pig butchering scam. The losses caused the bank to fail last summer. The size of the losses in these scams is huge. An investigator at a crypto-tracking firm told Zeke that at least $10 billion dollars has been lost to crypto romance scams like these. The most shocking part of Zeke's story, which he discussed with me on this channel a few months ago, is that he later learned that whoever was posing as Vicky was most likely themselves a victim of Human Trafficking. Later, as part of his research, Zeke traveled to a small casino town in southeastern Cambodia where these messages can be traced to and visited a compound of heavily guarded buildings, where one of the guards told his guide that the buildings were rented to Chinese companies and the workers inside couldn’t leave. He was told it was

useless to report forced labor to the local law 
enforcement who had been paid off as rather than   aiding the victims, the local law enforcement 
would detain them for immigration violations,   possibly returning them to their captors.
The workers trapped inside these buildings were   allegedly young people who had been lured from 
all over Southeast Asia with the promise of highly   paid jobs. They had their passports confiscated 
and were held captive, forced to run these scams.  Before we go any further, let me tell you 
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instructing them to buy crypto stablecoins on well-known crypto exchanges before then getting them to transfer the funds to fake trading apps that look and sound legitimate to crypto newbies. The fake trading apps are set up to have the look, the detail, and the functionality of a real trading app, and some scammers even use legitimate software that allows anyone to build a trading platform - as some of these software companies license their software to foreign exchange brokers who provide it as a front end to their clients. According to ForexFraud.com, scammers use clones of well-known trading apps which are modified to simulate transactions to make it look like real trades are happening and money is being made – in the real world, no actual trades are happening. Seeing this gives the victims a false sense of confidence and helps to encourage them to add more money to their accounts or to even get their friends and family to open accounts too.

This scam can be more sophisticated than you might expect. Some of the scam brokers even have fake help desks to field phone calls, and they encourage the use of features like two-factor authentication, giving victims the feeling that they are dealing with a legitimate broker. Some of these trading apps are even downloaded from the big app stores, and the scam victims check the reviews, see that the app is highly rated, and everything seems OK. The scammers are known to use AI-generated profile photos, or heavily photoshopped images so that a Google reverse image search won’t give them away. They occasionally even use AI software so that they can do video calls with the scam victims. In other cases, they claim that the selfie camera on their phone is damaged so that they can only do voice calls. The Boston lawyer with terminal cancer who was ripped off was being sent photos lifted from a Korean model's Instagram account, and

had multiple phone calls with the scammer. [Clip]
Before ripping off their victims, the scammers slowly build up a profile of the person's finances through the online relationship, asking questions about their income, the type of car they own, their lifestyle, and the assets they might own, like a home. They also encourage roping in friends and family members by promoting flash coin sales and special deals.
When the accounts are small, the scam victims can often withdraw some of their money. This tricks them into trusting the online platform, but once they have deposited a lot of money, they find themselves no longer able to withdraw. Often, the way it works is that they are told that they need to wire in additional money to pay a tax before withdrawing their funds. This can squeeze the last bit of money out of them. Their online romantic guide tells them that this is totally standard, and if they can't come up

with the money will encourage them to borrow it 
from friends and family to pay the tax. Shortly   afterwards, the brokerage firm disappears, the 
beautiful stranger disappears, and the victim   realizes that their money is gone. Often, victims 
are so embarrassed that they don’t even report the   crime to law enforcement because of the shame.
According to an FT article, Pig Butchering   scammers initially preyed on Chinese 
citizens, but later focused on ethnic   Chinese women living abroad after Beijing 
imposed a domestic ban on cryptocurrency   investments in early 2022. At this point, they 
target anyone who will respond to their messages.  While it might seem funny to string the 
scammers along and waste their time,   these claptive workers are often between 
if they don’t bring in enough money.  The Chinese government began its 
crackdown on crypto frauds in 2017,   eventually outlawing cryptocurrencies 
altogether. When this scam first appeared,

the Chinese police arrested gang members and warned citizens about how to avoid crypto fraud. The severity of the crackdown in China forced the gangs offshore to south-east Asia, where they began targeting victims outside of mainland China. The pandemic provided the perfect opportunity for scammers to build relationships with lonely men and women who were stuck at home - and the travel restrictions that had been put in place around the world provided the perfect excuse for why the con artist could never meet up in person. News reports of booming crypto prices and unlikely millionaires made the whole thing seem much more plausible back then than it does today. When the scammers began to flee China in late 2017 and early 2018, many moved to a town in western Cambodia, nicknamed the “Macau of south-east Asia”, where a fast-growing casino industry run by Chinese entrepreneurs already existed. The casinos were booming at the time and attracted

criminals, loan sharks, and prostitutes. 
In 2018, the provincial governor warned that Chinese investment had “created opportunities 
for the Chinese mafia” — including kidnapping, resulting in “insecurity” for the region.
Towards the end of 2019, Cambodia’s prime minister effectively banned online gambling. The pandemic 
a few months later brought travel restrictions, closing the remaining casinos and bringing a 
halt to the local construction boom. A lot of the Chinese casino workers and construction 
workers returned home, and the criminal 
gangs were forced to evolve. They turned the 
casino hotels and the newly abandoned office 
and residential buildings into call centers for 
their new profit center - the pig butchering scam. According to UN estimates, the Pig Butchering scam 
quickly grew to make up half of Cambodian GDP, which meant there was a lot of 
money being made which could be used to bribe local law enforcement.
The scale of Yuman Traffique King that

occurred to staff these scam centers become such a big issue that Chinese authorities had to issue travel warnings to Chinese citizens, warning them to be wary about accepting well-paid jobs in Cambodia due to the risk of being enslaved. In 2021, a joint Cambodian/Chinese police raid busted a 200-person scamming complex in Phnom Penh where most of the imprisoned workers turned out to be from China’s Yunnan province. An FT article from earlier this year describes how analysis by the blockchain analytics firm Chainalysis and the anti-slavery group “International Justice Mission” shows that a single compound in Myanmar scammed over $100 million dollars from Pig Butchering victims in less than two years. The investigators tracked digital coins issued by Tether being moved over the Tron blockchain from Pig Butchering Victims to two digital wallets owned by a Chinese company. They showed that Tether tokens and the Tron blockchain had also been used to extract

payments from the families of trafficked workers 
who were paying grand sums for their release. Chainalysis told the FT that they are seeing 
lots of scammers leverage Tether and Tron as the price stability of Tether is attractive, 
combined with the low transaction fees for Tron. A spokesman for The International Justice 
Mission told the journalist that “Everyone has known for a long time that these scams were 
blockchain-based, but this was the first time they had been able to tie the scamming to 
a specific location and a known compound.” In the book “Number Go Up,” a Taiwanese 
police officer told Zeke Faux that he had been investigating Human Trafficking for 
quite some time and that crypto was now making his work a lot more difficult. In the old days when 
criminals used traditional methods to move money, banks would turn over the criminal’s information 
to authorities in order to remain in compliance.

with the law. The police officer explained to Zeke that Tether doesn’t collect any information on the holders of its coins, making these crimes extremely difficult to investigate. In possibly the highest profile example of pig butchering, a Kansas bank called Heartland Tri-State Bank failed this time last year after its CEO allegedly used bank funds to buy cryptocurrency after being lured in with this scam. According to Bloomberg, the bank almost completely tapped out its sources of cash — drawing $24 million dollars from lines of credit with a correspondent bank to fund improper wire transfers. According to a regulatory review, the bank drew $21 million dollars from the Federal Home Loan Bank System, shortly before collapsing. The Justice Department charged Heartland’s former CEO, Shan Hanes in February this year, with embezzling $47.1 million dollars from the company. The sudden collapse of Heartland Tri-State Bank is reported to have shocked the Elkhart

community in Kansas that Heartland served, 
adding to a string of regional-bank failures last summer that culminated in a hit 
to the FDIC insurance fund that is estimated to have cost $54 million dollars.
I’ll put a link in the description to a BBC documentary from last year that can be found on 
YouTube that documents some of the terrible abuse suffered from the trafficked individuals forced 
to work in these scam call centers. Their stories are not for the faint of heart and describing 
them here would likely upset some viewers and possibly get me demonetized on YouTube.
Leaked Chinese-language scammer handbooks which can be found online underscore how 
the scammers toy with human psychology to take advantage of their victims, which the 
guidebook refers to as “customers”. There is however no mention of the customer ‘always 
being right’ in the guidebook. I checked… The guidebook says that your profile 
should have a naughty but cute nickname,

nothing crude. Your profile should be young enough to be attractive, but old enough to avoid being seen as childish. You should seem educated, wealthy, and you shouldn’t appear to have a regular job. Male scammers can claim to have autism or an old psychological trauma from their youth, and the female customer's natural maternal love will instinctively come out when they hear this, and they won’t pressure you. Female scammers don’t need any of that backstory. They just have to use a somewhat attractive profile photo. The manual teaches the scammers to arouse the customer’s inner dreams, goals, and to bring out a fighting state of mind. You can tell stories about how you teach a friend or relative how to make money, and that friend then cooks you meals in return. It suggests tricks like sending the customer two pictures of luxury bags or watches, asking them to help you choose one, hinting that you have recently made a lot of money and want to buy a gift for a family member.

It says that you should initially ease customers into making crypto investments by playfully bringing it up as a game you can play together. Tell the customer you're bored, that you want to play a game with them that can make them some extra money. There are uglier versions of these romance scams too, where criminals using online dating sites request intimate photos from their victims and then use them for blackmail. Of course, the demands for money in a situation like that will never end. This version of the scam often targets teenage boys and has led to some really terrible outcomes. In a situation like this you just have to let them release the photos and then tell your friends and family that they are deepfakes created using AI and just move on… Possibly the most useful thing we may get from AI is a plausible excuse… A paper from John Griffin and Kevin Mei from The University of Texas at Austin published a few months ago tracked crypto money flows.

In order to uncover how these scammers operate, the authors used data from victim reports to find the cryptocurrency addresses where victims were directed to send their funds by the scammers. They started with 4728 crypto addresses and found that most of the addresses were used ten or more times by the scammers. Twenty-eight percent of the addresses were used more than one hundred times, so they are not that worried about these things being shut down quickly. The authors tracked $15.2 billion dollars being moved from five exchanges, including Coinbase, Crypto.com, and Binance - exchanges typically used by victims in Western countries. The study said that once the scammers collected funds, they most often converted the various tokens into Tether, a popular stablecoin known as USDT through Tokenlon. Then, after circulating it through various hops in the network, the crypto finally exits the system through centralized exchange deposit addresses. Transactions in amounts above $100,000 dollars and in

particular $1 million dollars commonly went to 
deposit addresses on Binance, Huobi, and OKX. The researchers broke the transactions down into 
two groups: small transfers and large transfers, figuring that the small transfers back to 
exchanges were most likely inducement payments used to build the trust of the victims. And 
because scammers were unlikely to return large sums of stolen funds to their victims, 
they considered deposit addresses that receive more than $100,000 as more likely 
to be the scammers' own deposit addresses. These suspiciously large transactions 
were rarely sent to Western exchanges, instead going to Binance, Huobi, OKX, Kucoin, 
Bitkub, and MXC. They say that the common feature of these exchanges is that they have 
loose KYC procedures and are perceived to be outside of the reach of US law enforcement.
The study discovered by tracing the funds that

after the Chinese government banned cryptocurrency 
in late 2021, there was a dramatic decrease in   Chinese victims, and a shift to US-based victims. 
Overall, in the set of addresses touched by the   criminals, they found that 84% of the volume 
or $1.2 trillion dollars went through Tether.  The professors point out that it would be 
impossible to move that much illicit money   through the traditional financial system 
as the criminals would have to deal with   banks who follow anti-money laundering 
and know-your-customer procedures. You   couldn’t move that much money using cash either.
Money flows – they point out are the lifeblood of   organized crime, financing both current and future 
criminal activity. If these flows move unimpeded,   then criminal networks can be expected to expand 
over time. This is why the international financial   system has a framework in place to block the 
financing of international criminal activity. The paper argues that with the emergence 
of cryptocurrencies, which were specifically

designed to create an anonymous alternative financial system, criminal networks now have new ways of avoiding the detection and seizure of criminal proceeds. The professors highlight that crypto is rarely used as a medium of exchange to purchase goods and services, and thus typically needs to be converted into usable money. The entry and exit points into the crypto ecosystem are – according to their research - typically crypto exchanges, which also purport to conform to international laws designed to mitigate illicit financial flows. They point out that while crypto transactions are quasi-anonymous, they are still recorded on publicly accessible blockchains and with substantial effort, the movement of funds and their exit points can be tracked. The YouTube channel Coffeezilla has repeatedly shown this to be true by successfully tracking cryptocurrency transfers from the stupidest types of scammers – Influencers… So far – unfortunately - regulators and law enforcement appear to be either unwilling

or unable to do anything about this type of crime, other than recording it and discussing if various cryptocurrencies should be considered commodities or securities, a somewhat pointless distinction. In Number Go Up, a book I will link to in the video description, Zeke Faux describes visiting a scam compound in Cambodia alleged to house six thousand captive workers. He describes seeing people walking out of a money exchange booth that displayed the Tether logo carrying a lunchbox-size brick of $100 bills wrapped up with rubber bands. The University of Texas professors put forth a number of practical implications that can be drawn from their study. They firstly highlight which crypto exchanges are operating as the off-ramp for scammers. They show how useful Tether is to these criminals due to its stability and opacity, and they show how decentralized exchanges help block the tracking of illegal fund flows. The professors argue that the (often European and American) crypto hedge funds that provide liquidity on these platforms are profiting by

facilitating money laundering. They point out 
that the consistent patterns that their study uncovered point to a large, coordinated network, 
or several networks, which share similar services, meaning that these scams should not 
necessarily be treated as individual crimes, which is, at present, the norm for law enforcement.
They finally argue that western crypto exchanges who provide entry points for victims into the 
scam network are not adequately monitoring and protecting their customers, which they are capable 
of doing in the way that credit card companies are able to flag suspicious credit card transactions.
Their findings suggest that criminal networks are moving substantial funds cheaply and without 
much fear of detection and that the methods used for this study could be applied by law 
enforcement to track these criminal networks. If you found today’s video interesting, you 
should watch my interview with Zeke Faux on his book Number Go Up next. Don’t forget 
to check out our sponsor DeleteMe using

the link in the description. Have a great day and see you in the next video. Bye.

The Pig Butchering Scam!

Patrick Boyle is a hedge fund manager, a university professor and a former investment banker. 

This channel is all about quantitative finance. By subscribing you will see videos explaining what is happening in markets right now, you will learn about financial derivatives, corporate finance and how traders use quantitative tools like statistics. You will see interviews with some of the most interesting people in the financial industry.  In addition, you will see some longer form documentaries on the history of financial markets.

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