CFTC warns of crypto pump-and-dump plots

Posted: 15 February 2018 1:28 pm

“Customers should not purchase virtual currencies based on social media tips or sudden price spikes.”

The United States’ commodities trading regulator has issued a consumer advisory warning against “pump-and-dump” schemes that are becoming more prevalent among virtual currencies and digital tokens.

The Commodity Futures Trading Commission (CFTC) said it has received numerous complaints from customers who have lost money to pump-and-dump schemes, suggesting the best protection is comprehensive research.

“Customers should not purchase virtual currencies, digital coins or tokens based on social media tips or sudden price spikes,” the CFTC said in its advisory statement. “Thoroughly research virtual currencies, digital coins, tokens and the companies or entities behind them in order to separate hype from facts.”

The CFTC said that pump-and-dump schemes have been around long before cryptocurrencies ever existed, historically used as fodder to aggressively peddle penny stocks to novice and inexperienced trading victims.

However, similar schemes used to hype cryptocurrencies are often organized anonymously via social media.

“Some of these pump-and-dump groups and chat rooms contain thousands of members. The members subscribe to the group and follow the conversations as they indicate when the next pump-and-dump will occur,” the CFTC said.

Once the plan is set in motion, “it can be over in a matter of minutes,” according to the advisory warning.

“Commonly, it is the people pulling the strings who get out first making the most in the scheme, and leaving everyone else scrambling to sell before losing their investment,” the CFTC said.

Pump-and-dump schemes often use false news reports to drum up publicity, promotion and anticipation.

“These pump and dumps occur in the largely unregulated cash market for virtual currencies and digital tokens, and typically on platforms that offer a wide array of coin pairings for traders to buy and sell,” the CFTC said.

The CFTC said that some coin exchanges are taking measures to identify and block accounts that participate in pump-and-dump activities. Fraud victims and those wishing to report suspicious activity can contact the CFTC.

This month, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations highlighted the need to carefully monitor risks associated with emerging initial coin offerings (ICOs) in 2018.

The SECs compliance department published its annual list of priorities after SEC chairman Jay Clayton and CFTC chairman J. Christopher Giancarlo fielded questions concerning the oversight role of U.S. regulators with regards to virtual currencies at an open session Senate Committee hearing in Washington D.C.

The Internal Revenue Service (IRS) will establish a taskforce of investigators to track offenders with undeclared U.S. assets, including tax evaders who utilize cryptocurrencies to avoid making necessary contributions.

In order to assist crypto enthusiasts to learn about the burgeoning industry and make better decisions, Crypto Virtual Summit co-founder Amateo Ra recently created and released the Ultimate Crypto Kickstart Guide. As part of the guide, Ra provides readers a list of the most prevalent missteps crypto market traders can make.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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