Pandemic, Crypto Fuel Increase in Romance Scams

The number of romance-scam complaints continued to increase through 2021, after setting records in 2020, according to consumer reports to the Federal Trade Commission. The number of romance frauds reported to the FTC reached 56,000 in 2021, a nearly 70% increase over 2020. Victims reported losing about $547 million in such scams, a 78% jump from the prior year, FTC data show.

“Romance is a powerful hook for scammers,” said Emma Fletcher, a data researcher with the FTC’s Bureau of Consumer Protection.

The pandemic may have fueled the continued growth of romance scams as the coronavirus has provided a convenient excuse for scammers to say they aren’t able to meet in person, Ms. Fletcher said.

Last year also saw scammers increasingly using romance as a hook to lure people into bogus investments, particularly those involving cryptocurrency, she said. After romancing a potential target, the scammers often make a victim believe they are successful investors and casually offer investment advice for fake opportunities that often involve foreign-exchange trading or cryptocurrency.

Cryptocurrency was the top method by dollar amount that victims used to make such payments in 2021, at about $139 million. That is nearly five times the cryptocurrency amount reported in 2020 and more than 25 times that in 2019, the FTC said. In comparison, about $121 million was lost through bank transfers or payments and another $93 million through wire transfers in 2021, FTC data shows.

The FTC saw an increase in the frequency of romance-scam reporting across all age groups in 2021, but the most significant increase was among 18-29 year olds, Ms. Fletcher said.

The Global Anti-Scam Organization, a Singapore-based nonprofit formed by victims of online scams that often involve cryptocurrency, said more than 400 of its 1,200 group members are in the U.S. and the majority of its members fell for romance scams. GASO consists of many highly educated professionals in their 20s and 30s, some of whom are attorneys, software developers and physicians, who were looking forward to dating but were instead driven into debt, according to Jan Santiago, deputy director of GASO.

The group, which was founded in June, said the median loss for its U.S. members as of January was $83,000 each, with some individuals having lost more than $3 million.

The group has found that no matter how the victims meet the scammers—whether through social media or dating apps, or if the relationship starts romantically—the schemes have some common features. GASO said a scammer typically gains the trust of a target then offers financial advice and opportunities to invest in cryptocurrency and persuades a victim to set up an account on a trading platform such as Coinbase Global Inc., Gemini Trust Co. or Kraken. Within a week or two, the swindler then persuades the victim to transfer the money out of the account to a fake investment site offered by the scammer to trade certain cryptocurrency derivatives, allegedly to get better returns. But the victim isn’t then able to withdraw funds, even after paying hefty fees or so-called taxes.

“This scam is a hybrid of romance and investment,” Mr. Santiago said. Scammers combine the two to ensnare younger people, he said.

GASO has been helping its members with transaction tracing and how to report to law enforcement, and it has been working with regulators to raise awareness of the issues victims of these scams may face. The group also has been in contact with Coinbase’s global intelligence investigators to share details about the scams, Mr. Santiago said.

Representatives for Coinbase didn’t respond to a request for comment. Representatives for Gemini and Kraken didn’t immediately provide a comment.

Seven federal agencies recently launched a national awareness campaign to alert the public to romance scams that target victims largely through dating apps or social media. The agencies, which include the U.S. Treasury Department’s Financial Crimes Enforcement Network, the Commodity Futures Trading Commission and the Consumer Financial Protection Bureau, said they are reaching out to the public through social media and public-private partnerships to provide information on how to recognize scams and what do if you’re a victim, including how to collect documentation and report the fraud to the appropriate authorities.

GASO said the CFTC reached out to the group last fall to learn more about romance schemes and to consult on how to educate the public. The group said there should be more consumer and investor protection. A spokeswoman for the CFTC said they connected with GASO for research for one of the regulator’s advisories on romance scams.

“We make financial innovation so easy, and social engineering has led to less point-of-contact,” Mr. Santiago said. “[Digital financial services] should have the protection afforded as if a person goes into a bank physically and talks to a bank teller.”

Consumer education is key for financial institutions to be able to prevent and detect these frauds, particularly when payments often aren’t large, according to Alma Angotti, a partner with a focus on risk and regulatory compliance at consulting firm Guidehouse.

“It’s education, training and awareness,” she said. If someone is volunteering to send money through mobile-payment services or checks, financial institutions are not necessarily able to identify potential fraud because it may look like an unremarkable payment to them, she said.

But GASO said without more regulation, such as stricter know-your-customer onboarding processes and improved fraud detection at trading platforms and banks, there is little a victim can do to recoup losses.

“With crypto being such a volatile asset, [the exchanges] should have the same kind of regulations as they would have for margin trading,” Mr. Santiago said. “Many of the victims don’t even grasp how different crypto is,” he said, adding that trading platforms have a responsibility to make sure their users know how crypto works, or “they shouldn’t have let them in at all.”

Write to Mengqi Sun at [email protected]