Crypto criminals now targeting artists, because of course they are

Approached by NFT 'brokers,' creators are ripped off, and we all lose something

Organized digital criminals have found another vulnerable group to attack: artists. Using the confusion and buzz around crypto and NFTs, they are approaching artists with tempting partnership offers -- we'll make and sell NFTs of your work, and you'll earn tidy commissions. But after months of promising messages, and alleged big-ticket sales, the criminals ask the artists to pay taxes and fees and then disappear with the money.

It happened recently to Douglas Newton, a charming artist from Brooklyn who specializes in still-life oil paintings of candy. For a few months last year, he thought he'd stumbled on an amazing way to pay for his grandkids' college after an NFT broker approached him on LinkedIn. Instead, most of his retirement money was stolen by the NFT criminals. We tell his story in this week's episode of The Perfect Scam.

I spoke with Brooklyn District Attorney Eric Gonzalez for this story. Crypto crimes are so rampant -- particularly in Brooklyn -- that he's set up a special task force. While investigating Newton's crime, he discovered a series of other artists who'd been hit by the same crime -- they were approached about a buyer who wanted an NFT of their art, paid fees, then learned the buyer was fake.

(NFTs -- non-fungible tokens -- are a part of the crypto universe, a digital representation of a piece of art (or anything, really) that is entered into the blockchain to prove it's a one-of-a-kind creation. Some people think NFTs will be valuable one day. I don't. I do think they are another great playground for criminals and speculators.)

Experts constantly give trite advice like, "You should never pay money to make money," but when you are in a small business, that's not an option. Artists, like others in small businesses, have to take small leaps of faith like this all the time. And of course, hearing the words, "I want to buy your painting," can send even the most level-headed artist into a romantic fever. So that makes artists particularly vulnerable to crypto/NFT scams. I hope you'll communicate this warning to anyone you know who makes and sells artwork online, even if it's just a passion project. Also, as a society, we really need to protect our artists from scams. Douglas' work is beautiful and I'd hate for artists like him to get so discouraged that they stop creating and sharing their work.

A partial transcript of this episode is below. You can listen by clicking on this link, or better yet, find and subscribe to The Perfect Scam wherever you get your podcasts.

-------------------Partial transcript-------------------------

[00:10:09] Douglas Newton: And I just wasn't crazy about the idea, but I was approached on LinkedIn by a woman. Her name was Ernestine Vigil. She lived in Albuquerque, New Mexico. She said she liked my work, you know, and she would like to convert one of them to an NFT and sell them.

[00:10:31] Bob: So Douglas trades LinkedIn messages with Ernestine for a while.

[00:10:35] Douglas Newton: Well, I was intrigued because she said, you know, I can sell this, this thing and she picked a, a work out of my website. It was actually a pastel drawing of just two people I'd done in, in a life drawing class, and she said she can sell it.

[00:10:55] Bob: And critically, she was absorbing the expense of making the NFT, a few hundred dollars, and do all the legwork. So what's the risk? Douglas gives her permission.

[00:11:06] Douglas Newton: Go ahead, and go, they sent me a contract actually, a paper contract that I filled out and mailed back. She didn't flatter me too much, it was more like, this, we just have to do this, and we just have to do that, and then you're going to get a lot of money, and it kept going up.

[00:11:26] Bob: So he fills in the paperwork, sets up a crypto account as she told him to do. About two months go by and then Douglas hears from her again with amazing news.

[00:11:37] Douglas Newton: I thought, you know I'd be, I'd be happy to sell it for $1000, the actual thing, or less even. It's just a drawing, and a pastel drawing, and uh, she said I, she could sell it for $49,000, and then she told me it had sold for $49,000.

[00:11:55] Bob: She sold the NFT for $49,000?! That's amazing.

[00:12:02] Douglas Newton: It was like free money because I, I hadn't expected to even sell the thing, you know. I thought, oh I'm going to surprise my family with all this money that's suddenly appeared. And I kept it a secret from the beginning.

[00:12:17] Bob: Well you, you probably were imagining, you know, what, you could pay for college for the kid or, or...

[00:12:22] Douglas Newton: Yeah! Oh yeah, yeah, I would do re--, repairs on the house. Not that it needs that much, but you know, just lots of extra money. It was wonderful.

[00:12:33] Bob: But then, after a couple more months pass, the news gets even more wonderful. The NFT has been sold again, resold actually for even more money, so now he's entitled to eventually more than $300,000.

[00:12:49] Douglas Newton: I said, "Great, where's the money?" And then she said, "Oh, by the... it sold, it's resold for much more, but you have to pay the sales tax and the, what they call internet fees." They call them "gas" in the trade, internet fees. And so she started asking me for money.

[00:13:12] Bob: The requests are small at first, just a thousand dollars for sales tax and internet fees. Douglas sends that to her using his new cryptocurrency account. Then she needs several thousand more. And as the days go by, the requests and fees keep going up. Douglas doesn't have that kind of cash lying around.

[00:13:32] Douglas Newton: I ended up getting a, a personal loan at Citibank for $4000, and I ended up maxing out a couple of credit cards.

[00:13:41] Bob: He would send the money to this agent using PayPal, but that had limitations. Ernestine asked him to send money almost daily for several weeks until...

[00:13:53] Douglas Newton: I can't remember the exact figures, but it was like $2000 a day they would let me do. And somehow, I worked my way through $100,000.

[00:14:03] Bob: Just to give me a, an example, at one point she calls and says, "Great news. Now it's been sold for $150,000, but you need to put up $20,000." Or you tell me, what, what kind of numbers would...

[00:14:14] Douglas Newton: That's exactly how it went. It was uh, we were conversing on LinkedIn back and forth. I never talked to her on the phone. It was all on LinkedIn and later on we switched to email for some unknown reason.

[00:14:31] Bob: Douglas has maxed out his credit card so he turns to the only other source of funds he has in his quest to get this NFT windfall released.

[00:14:41] Douglas Newton: And I was just selling all this, all these IRAs getting them into Citibank, getting the money into Citibank, and then converting them.

[00:14:50] Bob: What was the largest single dollar amount she asked for? Do you remember?

[00:14:54] Douglas Newton: Oh, it must be about 20 or something like that.

[00:15:00] Bob: But all the while, he thinks he has a huge payout coming. In fact, his cryptocurrency website shows just that.

[00:15:07] Douglas Newton: By the time it was over, she said I was going to get $310,000.

[00:15:14] Bob: You could look at an account and it looked like you had $300,000 worth of bitcoin there, right?

[00:15:20] Douglas Newton: Yeah, oh yeah. Yeah, yeah, exactly. 310. I had to pay another $10,000 to get the key to unlock the money. That was the last thing they wanted me to do. Some, some sort of a key that would unlock the money.

[00:15:37] Bob: And all this is so tantalizing, right? Because they kept saying just pay this little bit more and you can unlock all this money.

[00:15:43] Douglas Newton: Yeah. I hate to admit it, but I sent all my IRAs at Vanguard to them.

[00:15:50] Bob: While all this is going on, Douglas doesn't tell his family. The whole time he's hoping he can surprise them with this windfall. But after that last request, haunting doubts creep into his mind.

[00:16:03] Douglas Newton: Over months, I kept this a secret, I kept thinking, this must be a scam but I would look it up on the internet and I didn't get any definitive proof that it was. It was like a nightmare. It, it was a horrible experience, it really was. Kind of the worst thing that ever happened to me.

[00:16:20] Bob: Oh God, I'm so sorry.

[00:16:23] Douglas Newton: Yeah, and I just, and I kept it a secret and I really thought I would surprise my family with $310,000, until they asked me for more money than I had in my IRAs at Vanguard, and at that point I just, something dawned on me, and I just realized that you know I, I didn't have any more money to give them, and it was that I was being scammed. I really realized, it took that for me to realize that I was being scammed.

[00:16:54] Bob: The feeling is devastating.

[00:16:59] Douglas Newton: Just the fact that I would spend all this money and nothing, nothing real ever happened, just promises. I remember waking up late at night thinking about this and going on the computer and googling everything I could think of. I never found anything definite, you know, like some other person who'd been scammed by them. I couldn't find it. But I had a lot of doubts and gradually the doubts got bigger than the hope, and uh when they asked for that last, last $10,000, which I did not have, then I, I confessed everything to my wife and my kids and uh, that, that was a really bad day.

[00:17:40] Bob: A really, really bad day.

[00:17:44] Bob: Can we talk about the day you had to tell your, your family? What was that like?

[00:17:47] Douglas Newton: Oh, it was horrible. It was just horrible. And they couldn't believe it at first, and then I, you know I, I showed them the numbers.

[00:17:56] Bob: Douglas' son ends up traveling home to help his dad deal with the fallout.

[00:18:02] Douglas Newton: My son lives in Vermont, and he came down and together we tried to do something. So we, we went to the police. We went to the Brooklyn DA, who were all very helpful, but they said this money's gone. You're not going to get it back. And they, they traced some of the calls, the emails I sent and they thought the money went to Europe, and then eventually Nigeria, imagine. Well I could imagine. But to Germany and other countries that it was part of a whole gang of people. She was just the representative, I'm sure working on a percentage.

[00:18:42] Bob: The Brooklyn DA is Eric Gonzalez, and he's taken a particular interest in NFT and crypto scams. There's even a task force -- we'll get to that -- but he tries to help Douglas as best he can.

[00:18:55] DA Eric Gonzalez: I think in this particular case that we're, we're talking about an 85-year-old victim had really invested his life savings in trying to recoup money, monies that he thought he had earned by selling his NFTs online. W met him when he came into the office.

[00:19:16] Bob: And it's a good thing he did report it because when the Brooklyn DA investigates, he finds out other artists have also been victims of these same criminals.