SEC official warns of 'catastrophic harm' from crypto relationship scams; here's how to avoid them.

• Investment fraud involving cryptocurrencies like bitcoin and ethereum has increasingly taken the form of crypto relationship scams.
• Federal officials stated that criminals utilize social media, networking platforms such as Instagram, WhatsApp, and LinkedIn to establish trust and lure individuals into purchasing fraudulent crypto investments.

Federal officials caution investors about the increased risk of falling victim to cryptocurrency scams that result from fake relationships formed on social media, dating apps, and networking sites.

Scammers often pose as a romantic interest, old friend, investment professional, or other acquaintance using dating apps, social media platforms, professional networking sites, or encrypted messaging apps to commit fraud.

Over time, fraudsters build trust with their targets and eventually propose investing in crypto, only to defraud victims through fake investments.

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Gurbir S. Grewal, director of the Securities and Exchange Commission's Division of Enforcement, stated in a press release that 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.

The SEC filed its first-ever enforcement actions related to crypto frauds last month. The agency claimed that fraudsters stole millions of dollars from investors through two separate schemes involving WhatsApp, LinkedIn, Instagram, and fake crypto trading platforms NanoBit and CoinW6.

Crypto scam losses 'can be huge'

Digital currency, including Bitcoin and Ethereum, has seen its use increase among criminals, as per the Federal Bureau of Investigation.

In 2023, consumers lost an estimated $5.6 billion from crypto-related scams, which is a 45% increase from the previous year, according to the FBI's fraud report.

In 2023, about 71% of total losses from investment scams were reported, according to the agency.

The most common form of crypto investment fraud last year was a relationship scam, according to the FBI.

The losses incurred by the dollar can be substantial, as stated by Kim Casci-Palangio, head of the romance scam recovery group at the Cybercrime Support Network, in a recent podcast published by the Financial Industry Regulatory Authority, a federal brokerage regulator.

Casci-Palangio stated that on average, each person in our program experiences approximately $178,000 in dollar losses.

These frauds are often 'long cons'

The FBI stated that due to its decentralized nature, speed of irreversible transactions, and ability to move money globally, crypto has become an increasingly popular outlet for fraud among criminals.

Micah Hauptman, director of investor protection at the Consumer Federation of America, stated that advancements in artificial intelligence may make it more difficult to detect romance scams related to crypto.

These frauds are often "long cons," Hauptman said.

Jules, a victim of a crypto relationship scam, shared her experience with the crime on a new FINRA podcast. FINRA kept her identity confidential by only using her first name. Although the exact amount of money she lost is unknown, she disclosed that it was "thousands of dollars of transactions."

In spring 2022, while finishing her undergraduate degree, Jules from the Seattle area started messaging a potential romantic interest on a dating app.

After a few weeks of consistent messaging, the man gradually mentioned the possibility of investing in bitcoin, she stated.

"Jules said, "This person was really kind and we had a really good interaction. It started with a friendship and communication, not with a demand for money.""

Jules said that the scammer, who was pretending to be a knowledgeable crypto investor, provided false information to create the illusion of having thousands of dollars in a digital wallet through fake screenshots.

Jules revealed that she utilized personal loans to finance her crypto investments, beginning with a small amount of $1,000 before transitioning to larger sums.

How to protect yourself from crypto scams

Financial experts, the FBI, and the SEC offer advice on safeguarding against crypto romance scams.

• Be wary of investment advice or promotions from strangers you meet online, even if they seem trustworthy.
• Beware of fraudsters who use fake websites that resemble legitimate financial institutions, such as cryptocurrency exchanges, to deceive people.
• Be cautious when investing through apps and only download legitimate ones.
• Don't be misled by the ability to make early withdrawals or see profits when someone is pitching you an investment.
• 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.