Investors are facing an increased risk of falling victim to cryptocurrency scams that are tied to fake relationships established through social media, dating apps, and professional networking sites. These scams involve fraudsters posing as romantic interests, old friends, or investment professionals in order to gain the trust of their targets over time. At some point, the scammers introduce the idea of investing in cryptocurrency and then defraud victims through fake investment opportunities. These relationship investment scams, particularly those involving crypto assets, are becoming increasingly popular with fraudsters and pose a significant threat to retail investors, according to Gurbir S. Grewal, the director of the SEC’s Division of Enforcement.
In response to the growing prevalence of these scams, the SEC recently brought its first-ever enforcement actions related to crypto relationship frauds. The agency has alleged that criminals have stolen millions of dollars from investors in schemes that involve platforms such as WhatsApp, LinkedIn, Instagram, and fake crypto asset trading platforms like NanoBit and CoinW6. The FBI has reported that consumers lost an estimated $5.6 billion from crypto-related scams in 2023, with investment scams accounting for about 71% of those total losses. The most prominent form of crypto investment fraud last year was the relationship scam, which can result in significant financial losses for victims.
Criminals are increasingly turning to cryptocurrency as a vehicle for fraud due to its decentralized nature, speed of transactions, and ability to facilitate international money transfers. These frauds are often considered “long cons” by experts, as they involve establishing trust with victims over an extended period of time before exploiting that trust for financial gain. Victims of crypto relationship scams may be encouraged to invest significant amounts of money based on false information provided by scammers, such as fake screenshots of large sums of money in digital wallets. These scams can have devastating financial consequences for victims, with average losses amounting to $178,000 per person.
Financial experts recommend taking precautions to protect yourself from falling victim to crypto romance scams. These tips include being cautious of investment advice or promotions from individuals you have only met online, watching out for domain or website names that impersonate legitimate financial institutions, and verifying the legitimacy of investment apps before downloading them. Additionally, it is important to be wary of investment opportunities that seem too good to be true and to double-check the registration of investment firms on BrokerCheck. By staying informed about the tactics used by scammers and taking proactive measures to protect your investments, you can reduce the risk of becoming a victim of cryptocurrency fraud.
