Although the U.S. gaming industry has quickly embraced online gaming and cashless wagering, new frontiers are emerging in non-fungible tokens (NFTs) and cryptocurrency that come with new business opportunities but also new opportunities for fraud.
“It’s the wild, wild west right now,” Nevada-based FBI agent Rick Alwine said of NFTs.
NFTs are digital assets made unique and therefore scarce through blockchain technology.
Alwine noted the U.S. Department of Justice (DOJ) last month charged two 20-year-olds with wire fraud and money laundering for allegedly selling fake NFTs to investors before shutting down their website and generating more than $1m in digital funds.
According to the DOJ, the defendants marketed “Frosties” as the entry point to a broader online community consisting of games, reward programs, and other benefits. In January, their “Frosties” pre-sale raised $1.1m.
“From an FBI perspective, we are seeing a flood of NFT theft come in right now,” Alwine said. “[We] are just trying to figure out a way … to prosecute them or if it is even possible to seize them and repatriate them to their original owner.”
Alwine did not discuss any specific fraudulent NFTs associated with the U.S. gaming industry, but some European gambling companies have begun launching products linked to NFTs.
Gibraltar-based Caleta Gaming introduced an NFT-themed slots game that uses NFT artwork and promises to award winners with “exclusive NFT art pieces,” VIXIO GamblingCompliance reported earlier this month.
The head of the UK Gambling Commission earlier this month warned that NFTs offer gambling-like elements, but are not currently subject to any gaming oversight.
In terms of cryptocurrency, their widespread acceptance by gaming regulators may not occur until there is a federal framework, so they feel comfortable with cyrptocurrencies as a form of payment.
It is a similar story for NFTs, too.
“NFTs are currently not offered directly in conjunction or association with regulated gaming activity in Pennsylvania,” said Doug Harbach, communications director with the Pennsylvania Gaming Control Board.
“They are obviously something that the gaming industry may be trending towards, so the board will continue to monitor developments in that area,” Harbach told VIXIO on Wednesday (April 27).
“As of this date a regulated gaming product making use of a NFT has not been approved by the Nevada Gaming Control Board,” said Michael Lawton, the board’s senior economic analyst. “I don’t have anything further to add in terms of discussions or the board’s outlook in terms of regulatory impacts.”
Alwine, who participated in a 90-minute webinar on Tuesday on the latest cyber threats sponsored by the Nevada Banker’s Association, said NFT fraud was his “number one priority,” but cautioned that more traditional threats were still an issue.
He told attendees that business email compromises and CEO fraud still exists and is still rampant in the business community in Nevada.
“We also see ransomware hasn’t given in,” Alwine said. “There are hundreds of variants out there. Its successful and it’s going to work.”
“We’ve seen in the dark net now ransomware as a service, even where if you don’t have the skills or if someone doesn’t have the skills to write ransomware they can simply go on the dark net and rent it out if they can find a target and they will.”
Alwine reminded executives and employees that their “social media hygiene,” or how wisely they use social media, “should be really good because our adversaries use all those sources to identify the folks in an organization who to target.”
“They will go to LinkedIn, they’ll go to your Facebook, Twitter, Instagram, even TikTok if you have one. They’ll hit them all. They’ll figure out what your network is, and they’ll use it against you.”
Alwine, who is based in Las Vegas, said there are unique issues in Nevada because of casinos where traditional fraud is rampant, especially with credit cards.
“I can’t tell you how many rooms we have gone into and found credit card making machines. It’s easy to do and it’s not going away as it relates to this new frontier with crypto and NFTs.”
Alwine said law enforcement agents have also seen a lot of money laundering coming into the NFT and crypto world.
“It’s just very easy for someone who wants to launder money to create an NFT, mint it and set price it at $1, [they] pay $1m and you’ve just washed a million dollars just that easily,” he added. “We are seeing the traditional stuff and we are seeing them move over into the new frontier with technology.”