In January, Jim Meduri answered a terrifying phone call from a man pretending to be his son.

The caller, who sounded on the verge of tears, said he had been in a car accident. Meduri was convinced his son had been arrested for driving under the influence and injuring a pregnant woman and her daughter.

The San Jose resident later spoke with people who impersonated a defense attorney and a clerk of court, who told him his son might be sent from the Bay Area to Nevada because of an mpox outbreak at the prison. Panicked and in a hurry, Meduri agreed to send bail money through cryptocurrency. The fake lawyer directed Meduri, 65, to an ATM where people can buy the digital currency Bitcoin. He put $15,000 in cash into the machine, scanned a code provided by the scammers and transferred the money.

When Meduri realized he had been duped, his money was gone.

“They played on fear and what a parent would do to help their child, and it was elaborate,” said Meduri, who was able to recover most of his money with help from the Santa Clara County District Attorney’s Office.

Meduri’s accident is just one example of how scammers are using bitcoin ATMs to swindle victims out of thousands of dollars, a scam that law enforcement warns is on the rise.

The machines, in convenience stores, gas stations and even bakeries, are an easy way for people to quickly buy cryptocurrency with cash, which is harder to track than a bank transfer or check. As scammers exploit the convenience these machines offer, bitcoin ATMs are also attracting the attention of lawmakers, regulators and consumer advocacy groups seeking to protect people from fraud and excessive fees.

Starting in January, California will limit cryptocurrency ATM transactions to $1,000 per day per person under Senate Bill 401, which Governor Gavin Newsom signed into law. Some bitcoin ATM machines advertise limits as high as $50,000. The new law also prohibits bitcoin ATM operators from collecting fees higher than $5 or 15% of the transaction, whichever is greater, starting in 2025. Legislative staffers visited a crypto kiosk in Sacramento and comments as high as 33% found on some digital assets when comparing the prices at which cryptocurrency is bought and sold. Typically, a crypto ATM charges fees between 12% and 25% above the value of the digital asset, according to a legislative analysis.

“This bill is about making sure that people who have been defrauded in our communities don’t continue to watch our state step aside when we know that these are real problems that are happening,” said state Sen. Monique Limón (D- Goleta) said. who co-authored the bill.

Although similar scams existed long before the rising popularity of cryptocurrency, the use of these digital assets by fraudsters has increased, according to the Federal Trade Commission. Since 2021, more than 46,000 people have reported losing more than $1 billion in crypto to scams, the agency reported in 2022.

Victims of bitcoin ATM scams say limiting the transactions will give people more time to figure out they’re being scammed and prevent them from using large amounts of cash to buy cryptocurrency. But crypto ATM operators say the new laws will hurt their industry and the small businesses that pay them to rent space for the machines. There are more than 3,200 bitcoin ATMs in California, according to Coin ATM Radar, a website that tracks the machines’ locations.

“This bill fails to adequately address how to crack down on fraud, and instead takes a punitive path focused on a specific technology that will shake the industry and hurt consumers, while doing nothing to stop bad actors. doesn’t stop,” said Charles Belle, executive director of The Blockchain Advocacy Coalition.

As California lawmakers have sought to balance the need to support the cryptocurrency industry and protect consumers, recent legislation has cut in the direction of stricter state regulation. Another law would require digital financial asset businesses to obtain a license from the California Department of Financial Protection and Innovation by July 2025.

In signing the legislation, Assembly Bill 39, Newsom included a message saying the law needs further refinement to provide clarity to consumers, businesses and state regulators.

‘It is essential that we strike the appropriate balance between protecting consumers from harm and promoting a responsible innovation environment,’ he wrote.

In 2022, months before the collapse of cryptocurrency exchange FTX, Newsom vetoed a similar bill that would have required cryptocurrency companies to obtain a state license, citing concerns that a new regulatory program would be expensive and the actions were premature.

Erin West, a Santa Clara County deputy district attorney who helped Meduri get his money back, said scammers are turning to bitcoin ATM machines because they accept large amounts of cash. The value of bitcoin can also rise, giving fraudsters a way to increase their loot.

Scammers use different tactics to trick people into handing over their money, including creating a false sense of urgency and gaining their trust. Some befriend or seduce their victims through social media or dating apps, luring them into a web of lies that include false emergencies. Other times, the scam starts with a text message that directs victims to a fake cryptocurrency investment site.

West said her team was able to recover $2.5 million for fraud victims like Meduri by tracking down the cryptocurrency exchange involved in the transaction. After Meduri put $15,000 into a kiosk operated by Bitcoin ATM Services, the digital money ended up in the cryptocurrency exchange Binance. The exchange complied with a search warrant, which allowed her team to retrieve the stolen funds from Binance and return them to Meduri.

While it’s possible for cryptocurrency victims to get their money back, even if it travels overseas, West said it’s rare. Some cryptocurrency exchanges cooperate more with law enforcement than others, she said.

“This whole thing is a speed game,” said West, who is part of a task force called REACT – Regional Enforcement Allied Computer Team – that fights high-tech crimes. “Can we get the victim in front of a skilled investigator who knows how to find things on the blockchain in the least amount of time?” Blockchain is a type of shared digital database that stores information about crypto transactions.

An 80-year-old retired Los Angeles teacher previously interviewed by The Times said she was unable to recover $69,000 she sent to scammers through a bitcoin ATM over several days in May. The stolen funds ended up in Seychelles-based cryptocurrency exchange Kucoin and Huobi.

The scam started when mrs. K, who wishes to remain anonymous because she is more careful about giving out her personal information, received a loud pop-up warning that her computer was infected with a virus. After calling a fake tech support number and later talking to a person impersonating the FBI, Mrs. K thought her Chase bank account had been taken over by foreign Chinese hackers involved in a child pornography case. To keep up the extensive noise, the swindlers also mrs. K Fake Chase Bank emails sent.

‘If it wasn’t for this complicated abuse, I probably would have been a bit smarter and not fallen into this trap,’ said Mrs. K said. ‘I feel so disappointed in myself that I just fell hook, line and sinker.’

Mrs. K said the FBI impersonator told her to withdraw $75,000 in cash from her Chase checking account over three days and not tell anyone. If workers at the bank asked, the scammer told mrs. K said that she was withdrawing cash for construction.

The FBI impersonator mrs. K convinces that she can help law enforcement catch the child predators if she converts the cash to cryptocurrency and transfers the funds to a digital wallet that the agency would monitor. The elaborate lie eventually led Mrs. K to a Coinhub Bitcoin ATM machine at a Highland Park donut shop that accepts up to $25,000 in cash per person daily.

By the time she realized it was a scam, Mrs. K sent $69,000 to the fraudsters. She reported the crime to the police, but was unable to get her money back.

Under federal law, bitcoin ATM operators are typically considered money service businesses, so they must register with the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. The agency collects and analyzes financial information to combat money laundering and other illegal uses. The businesses must also maintain an anti-money laundering program and report suspicious activity to the agency.

Logan Short, the CEO of LSGT Services, which does business as Coinhub Bitcoin ATM, said in an email that the company does “everything it can to protect consumers, but unfortunately fraud is not 100% preventable in any industry not.” The Las Vegas company is registered with FinCEN, but faced allegations that it operated crypto ATM machines in Connecticut without the required state license.

Bitcoin ATM Services, which operates the kiosk Meduri uses, says on its website that it is registered with FinCEN. The Times could not find a record of Bitcoin ATM Services being registered as a money services business with FinCEN. A company called Cash ATM Services that has the same mailing address as Bitcoin ATM Services is registered. Bitcoin ATM Services did not respond to a request for comment.

Law enforcement has cracked down on unlicensed crypto ATMs, but it can be hard for consumers to tell how serious the industry is about addressing the concerns. In 2020, a Yorba Linda man pleaded guilty to charges of operating unlicensed bitcoin ATMs and failing to maintain an anti-money laundering program despite knowing criminals were using the funds. The illegal business, known as Herocoin, allowed people to buy and sell Bitcoin in transactions of up to $25,000 and charged a fee of up to 25%.

Cryptocurrency regulations vary by state. California has long exempted crypto ATMs from licensing requirements for businesses engaged in money transmission.

Crypto ATM machines serve people who don’t have a bank account or just want the convenience of buying cryptocurrency at a gas station, convenience store or other store, said Ayman Rida, CEO of Cash2Bitcoin, which works with cryptocurrency ATM operators , including in California. complying with state regulations. The fees ATM charges are higher than online exchanges, he said, to cover certain expenses. This includes the cost of rented space, machine maintenance and cash management.

Crypto ATM operators are not against clearer rules and guidelines, he said, but they are against limiting fees and transactions. Crypto ATM operators typically require more forms of identification if a customer makes a transaction over $1,000, and in some cases flag high-value transactions, which can help stop scammers.

“Scammers are getting smarter,” he said. “My question to the regulators is, why are you killing an industry when scams also happen to other industries, but they don’t do anything about it either?”

As for Meduri, he’s just relieved his son wasn’t really arrested and in a car accident. Oddly enough, it came with a sense of relief to find out it was all an elaborate lie.

“My wife and I were just devastated that day,” he said. “I didn’t even care. I was happy he was OK.”