Crypto relationship scams pose ‘catastrophic harm,’ SEC says. How to avoid them

Investors are at a heightened risk of cryptocurrency scams tied to fake relationships established over social media, dating apps and networking sites, federal officials warn.

Such frauds occur when scammers use dating apps, social media platforms, professional networking sites or encrypted messaging apps to pose as a romantic interest, old friend, investment professional or other acquaintance.

Fraudsters gain the trust of targets over time. At some point, they broach the idea of investing in crypto — and then defraud victims via fake investments.

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“Relationship investment scams, including those involving crypto asset investments, pose a risk of catastrophic harm to retail investors, and the threat is increasing rapidly as these scams become more popular with fraudsters,” Gurbir S. Grewal, director of the Securities and Exchange Commission’s Division of Enforcement, said in a press statement.

Last month, the SEC brought its first-ever enforcement actions tied to crypto relationship frauds. The SEC alleged criminals pilfered millions of dollars of investors’ money in two separate schemes tied to WhatsApp, LinkedIn and Instagram and fake crypto asset trading platforms NanoBit and CoinW6.

Crypto, examples of which includes bitcoin and ethereum, is a digital currency. Its use has grown among criminals, according to the Federal Bureau of Investigation.

Consumers lost an estimated $5.6 billion from crypto-related scams in 2023, up 45% from 2022, the FBI said in a recent fraud report.

Investment scams accounted for about 71% of those total losses in 2023, the agency said.

There are “many variations” of crypto investment fraud, but the most prominent last year was the relationship scam, the FBI said.

“The dollar losses can be huge,” Kim Casci-Palangio, head of the romance scam recovery group at the Cybercrime Support Network, said on a recent podcast published by the Financial Industry Regulatory Authority, a federal brokerage regulator.

“For our program, the dollar losses average about $178,000 a person,” Casci-Palangio said.

Criminals have turned to crypto more readily as an outlet for fraud because of its decentralized nature, the speed of irreversible transactions and ability to move money around the world, the FBI said.

Advancements in artificial intelligence will likely make romance scams tied to crypto harder to detect, said Micah Hauptman, director of investor protection at the Consumer Federation of America, a nonprofit consumer advocacy group.

These frauds are often “long cons,” Hauptman said.

Jules, a victim of a crypto relationship scam, detailed her experience with the crime on a new FINRA podcast. FINRA only used Jules’ first name to protect her identity. It’s unclear how much total money she lost, but disclosed it was “thousands of dollars of transactions.”

Jules, who grew up in the Seattle area, began messaging a supposed romantic interest on a dating app in spring 2022 while finishing the final few weeks of her undergraduate degree.

After a “couple of weeks of regular communication” via text, the man “slowly” began to introduce the idea of investing into bitcoin, she said.

“This person was really kind. We had really good interaction,” Jules said. “It started with a friendship. It started with communication. It wasn’t like, ‘Hey, give me your money.'”

The romantic interest — who was a scammer hiding his identity — provided information to build the illusion he was a knowledgeable crypto investor, such as fake screenshots of thousands of dollars in a digital wallet, Jules said.

She took out personal loans to fund crypto investments, she said. Initially, she started with a “little bit” of money,” around $1,000, eventually moving into “larger dollar amounts,” Jules said.

Here are tips from the FBI, SEC and financial experts on how to protect yourself from crypto romance scams:

• Be cautious of investment advice or promotions from someone you meet online and have never met in real life, even if you have spoken on the phone or video chatted — and no matter how trustworthy they seem.
• Look out for domain or website names that impersonate legitimate financial institutions, especially cryptocurrency exchanges. Fraudsters often use websites that mimic those of real financial firms (but are often slightly different) to convince people of legitimacy.
• Don’t download or use suspicious-looking apps to invest unless you can verify their legitimacy.
• If someone is pitching you can investment, don’t gain a false sense of security by being able to make early withdrawals or seeing “profits.”
• Beware of fake testimonials from people claiming to have made money.
• If an investment sounds too good to be true, it likely is.
• Double check that an investment firm is registered on BrokerCheck.