In recent weeks, the United States government has taken a hands-off, “do no harm” approach to cryptocurrencies, and have lauded the underpinning blockchain technology for its potential benefits. However, both the CFTC and SEC have been pointed out there are still dangers for investors in the form of ICOs, scams, and pump and dump groups.
The United States Commodity Futures Trading Commission (CFTC) has taken its warnings a step further by issuing an official statement regarding pump and dump groups and have offered a $100,000 bounty for information “that leads to a successful enforcement action that leads to monetary sanctions of $1 million or more”.
The move encourages whistleblowers to put a spotlight on pump and dump groups and make investing safer for those in the crypto space.
In an official Customer Protection Advisory released by the CFTC, Director of Public Affairs Erica Elliott Richardson offered this statement:
"Pump-and-dump schemes long pre-date the invention of virtual currencies, and typically conjure the image of penny stock boiler rooms, but customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive. The CFTC encourages all customers to thoroughly research potential investments, stay informed about tactics commonly used in investment fraud, and avoid investment opportunities they don't fully understand.”
The statement warns investors taking advice based on tips found on social media to avoid coordinated efforts by groups seeking to prey on inexperienced or uneducated investors.
Pump and dump groups typically live on social media groups, internet forums, or other chat channels and organize large buys (pumps) that are immediately followed by large sales (dumps). The goal is to use social media and other means of “shilling” to get users to follow the beginning of a coin that is quickly trending up (pump), and once the prey takes the bait and buys the coin, the coin is then dumped and the investors who bought in at the end not realizing they were part of a pump and dump end up losing out in the trade.
Pump and dump groups are also notorious for having multiple tiers, with the more advanced users pre-pumping coins before a second, more widespread pump is turned over to the larger group.
The CFTC claims it has received complaints from customers who have lost money in these pump and dump schemes, and will likely be among the first issues the regulation in the United States targets, in addition to scam ICOs.
Have you fallen victim to a pump and dump group or know of a pump and dump group preying on unsuspecting investors? Report them via the CFTC’s Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.