What Do Crypto and AI Get-Rich-Quick Schemes Have in Common? FOMO and Flimsy Due Diligence A new wave of fraudulent investment schemes is coming — and it's powered by AI.

During the heyday of the crypto and blockchain industry, many investors looking at highly publicized fortunes seemingly made overnight started experiencing the Fear Of Missing Out and decided to try and get a piece of the supposedly fabulous wealth that was being created.

Unscrupulous promoters and companies were watching. They started offering dubious investments, targeting unsophisticated investors. Cryptocurrency and blockchain investment opportunities were sometimes little more than wishful thinking, while their promoters and sponsors had no history, qualifications or past accomplishments to speak of. Some turned out to be outright frauds. While many crypto and blockchain startups that sought to raise money from investors were good–faith BIZ Experiencesial initiatives driven by ethical individuals, many others were not.

Crypto-fraudsters developed sophisticated ways to placate legitimate questions by investors: lack of industry background by a startup's founder? It's a new industry, so no one has much experience with it. Lack of prior performance? Same answer. Extraordinarily high rates of return? It's a booming industry, and everybody seems to be making multiples of their investment. No auditor or outside law firm? It's a new field, and those old-school auditors and lawyers are staying away because they don't understand how it works. Are regulators asking questions? Same answer as before: new industry, those stodgy regulators don't understand how it works. Complete lack of transparency? This is how all players in this new industry do it, so that's the norm. Founder playing computer games while asking investors for money? That's proof he's brilliant and able to multi-task. Easy-to-replicate drawings of monkeys of dubious artistic value offered for hundreds of thousands of dollars apiece? Every other celebrity is getting one, so they must be worth a lot of money.

Related: Most Web3 Marketing is Fake. Here's Why.

The predictable results of such FOMO-driven investing were countless fraudulent investment schemes with hundreds of thousands of victims, and an industry-wide bubble that finally burst in 2022, destroying billions of dollars of investor wealth and causing untold hardship to numerous victims who could not afford to lose that money and would not have invested in the first place had they have been aware of the facts surrounding those schemes.

Examples abound. FTX, a company valued at $32 billion at the beginning of 2022, filed for bankruptcy by the end of the same year amidst allegations of major and extensive fraud and theft of investor money. In 2021, BitConnect was accused by the Securities and Exchange Commission of paying its investors with other investors' money – the textbook definition of a Ponzi scheme — and causing investor losses of about $2.4 billion loss. In 2020, Bitclub's founder pled guilty to defrauding investors between 2014 and 2019 of at least $722 million. In 2017 and 2018, OneCoin's founders were criminally charged by US federal prosecutors with defrauding investors to the tune of over $4 billion.

Related: Scammers Make Off With $500,000 in Phished Crypto

The advent of AI fraud

Last year's crypto crash abruptly ended much of the fundraising activity. However, just as investors were walking away from crypto and blockchain and counting their losses, a new industry took off after years of false starts: artificial intelligence. While AI is likely to have a far more significant impact on the economy and society than crypto, unscrupulous promoters looking to part investors from their money are taking a page from the crypto-fraud playbook as they start concocting schemes to promote dubious investments in the AI industry.

Get-rich-quick schemes offering AI-driven investment opportunities are springing up. Just like with crypto, astute social media promoters with no background in the industry to speak of pass themselves as AI experts and offer opportunities to make a lot of money quickly. More complex schemes are likely to follow, seeking to raise substantially larger amounts of money from investors for startups supposedly involved in AI-related businesses or offering AI-powered services.

Just like a few years ago, companies added "blockchain" to their description to garner investor interest while crypto was riding high. Expect to see companies with very little to do with AI, very little expertise in AI and virtually no track record in AI re-branding themselves as AI-driven businesses to increase their attractiveness to investors and boost their stock price. Supposed AI-powered start-ups will likely attempt to raise money from investors with promises of revolutionary products and services. It is conceivable that an AI bubble will eventually dwarf the recent crypto and dot-com bubble decades ago.

Related: 3 Common Lies of a Get Rich Quick Scheme (and How to Avoid Them)

Say No to FOMO-driven investing

Being disciplined, avoiding FOMO-driven investing and conducting thorough, reasonable old-fashioned due diligence remain as sound investing principles as ever. Evaluating risks with healthy skepticism is critical, particularly given the novelty of the industry and the inherent limitations in making reliable predictions. Carefully investigating red flags, and asking for backup for factual claims made by an investment's issuer, sponsor or promoter, are as relevant due diligence techniques for AI startups as for any other companies.

Walking away from the most tempting investment opportunity when questions are not satisfactorily answered, and red flags not fully explained should always be an option on the table. The costs of avoiding fraud and investment loss are virtually always far lower than the cost of dealing with losses caused by fraud.