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Investors are at increased risk of cryptocurrency scams tied to fake relationships established on social media, dating apps and networking sites, federal officials have warned.
These scams occur when scammers use dating apps, social media platforms, professional networking sites, or encrypted messaging apps to pretend to be a romantic interest, old friend, investment professional, or other acquaintance. It happens.
Scammers gain the trust of their targets over time. At some point, they come up with the idea of investing in cryptocurrencies and scam the victims through fake investments.
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“Relationship investment scams, including those involving crypto-asset investments, pose a devastating risk to retail investors, and the threat is rapidly increasing as these scams become more popular with fraudsters.” said Gurbir S. Grewal, director of the Exchange Commission. The executive branch said in a press statement.
Last month, the SEC took its first ever enforcement action related to cryptocurrency fraud. The SEC alleged that the criminals stole millions of dollars in investor funds in two separate schemes related to WhatsApp, LinkedIn, Instagram and fake crypto trading platforms NanoBit and CoinW6.
Losses from cryptocurrency fraud ‘could be huge’
Cryptocurrencies such as Bitcoin and Ethereum are digital currencies. The Federal Bureau of Investigation says its use among criminals is increasing.
In a recent fraud report, the FBI announced that consumers lost an estimated $5.6 billion to crypto-related fraud in 2023, an increase of 45% from 2022.
According to the agency, about 71% of total losses in 2023 were due to investment fraud.
There are “many variations” of cryptocurrency investment scams, but relationship scams were the most prominent last year, the FBI said.
“The dollar losses could be huge,” Kim Cassi Palangio, director of the Cybercrime Support Network’s Romance Fraud Recovery Group, said in a recent podcast released by the Financial Industry Regulatory Authority, the federal securities exchange regulator. There is,” he said.
“In our program, dollar losses average about $178,000 per person,” Casipalangio said.
These scams often come with a “long con”
According to the FBI, its decentralized nature, speed of irreversible transactions, and ability to move funds around the world have made it easier for criminals to turn to cryptocurrencies as a means of fraud.
Advances in artificial intelligence will likely make romance scams related to cryptocurrencies even more difficult to detect, said Mika Hauptmann, director of investor protection at the Consumer Federation of America, a nonprofit consumer advocacy group. said.
Hauptmann said such fraud often “results in long-term disadvantages.”
Jules, a victim of cryptocurrency fraud, details her criminal experience on a new FINRA podcast. FINRA used only Jules’ first name to protect her identity. It’s unclear how much money she lost, but she said it was a “several thousand dollar deal.”
Jules, who grew up in the Seattle area, started messaging potential romantic interests on dating apps in the spring of 2022, while she was completing her final weeks of her bachelor’s degree.
After “several weeks of regular communication” via text messages, the man “slowly” began to entertain the idea of investing in Bitcoin, she said.
“This person was really kind. We had a really good interaction,” Jules said. “It started with friendship. It started with communication. It wasn’t like, ‘Hey, give me the money.’
Jules said her boyfriend was a fraudster who hid his identity and provided information to create the illusion that he was a savvy cryptocurrency investor, including fake screenshots of thousands of dollars in his digital wallet. That’s what it means.
She said she took out a personal loan to fund her cryptocurrency investment. Jules said she started with “small amounts” of money, around $1,000, and eventually moved on to “bigger amounts.”
How to protect yourself from cryptocurrency scams
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Here are tips from the FBI, SEC, and financial experts on how to protect yourself from crypto romance scams.
Even if you’ve talked to them over the phone or video chat, be wary of investment advice or promotions from people you meet online and have never met in person, no matter how trustworthy they are. Be wary of domain or website names that pretend to be legitimate. Financial institutions, especially virtual currency exchanges. Scammers use websites that mimic (but often differ slightly from) real financial company websites to trick people into believing they are legitimate. Don’t download or use questionable apps for investing unless you can verify their legitimacy. If someone is pitching, you can invest. , don’t let early withdrawals or seeing “profits” give you a false sense of security. Beware of fake testimonials from people who claim to have made a profit. If an investment seems too good to be true, it probably is. Please make sure your Double investment company is registered with BrokerCheck.
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