[co-author: Stephanie Kozol]*
Recent actions by the Pennsylvania and Iowa state attorneys general (AG) suggest increasing regulatory scrutiny of bitcoin transaction machines (BTMs) in connection with the role they allegedly play in facilitating scams. In Pennsylvania, AG David Sunday issued a consumer alert, warning Pennsylvanians that scammers are using BTMs to gain access to their money. In Iowa, AG Brenna Bird brought two lawsuits against Bitcoin Depot and CoinFlip, Iowa’s two largest BTM operators, over alleged collection of illegal fees and failures that allowed Iowans to send millions of dollars to scammers through their kiosks.
What Happened
On February 25, Sunday issued a warning about BTMs, which he alleges scammers use to facilitate scams. According to the alert, cyber criminals employ urgent messages, such as instructions to “protect your money” or “take care of criminal charges,” to manipulate victims. They often possess personal information about the victim’s financial institutions, making their claims more convincing. The scam typically involves coercing the victim into making large cash withdrawals and then depositing the funds into a BTM. The scammers then allegedly instruct the victim to scan and send a QR code, which grants the criminals access to the funds, making recovery nearly impossible. Sunday emphasized the importance of consumer caution and awareness of such tactics, and advised consumers to verify the legitimacy of any urgent request for the transfer of money to avoid falling victim to scams.
On February 26, Bird initiated two enforcement actions against BTM operators CoinFlip and Bitcoin Depot. The complaints allege that these companies violated the Iowa Consumer Fraud Act by engaging in unfair practices, deception, and misrepresentations. Specifically, Bird contends that the companies’ BTMs facilitate scam transactions, resulting in significant financial harm to consumers, particularly older individuals. The complaint further asserts that between January 2021 and June 2024, Iowans processed more than $13 million in scam transactions through BTMs, and as beneficiaries of these transactions, CoinFlip and Bitcoin Depot intentionally failed to implement fraud-prevention safeguards. Additionally, Bird accuses the two companies of not clearly disclosing Bitcoin prices and transaction fees, thereby misleading consumers.
Why It Matters
The recent actions by the Pennsylvania and Iowa State AGs underscore a growing concern among state authorities about the role of BTM operators in facilitating financial scams. As such, BTM operators should review current practices to ensure that baseline measures are in place to prevent fraud. Key practices include leveraging data on the blockchain to monitor for transaction irregularities, and ensuring appropriate responses take place when suspicious activity is identified. Additionally, companies must be transparent when disclosing prices and transaction fees to avoid accusations that the company has intentionally misled consumers.
*Senior Government Relations Manager
