CFTC Issues Its First Virtual Currency “Pump-and-Dump” Schemes Warning

The Commission continues its involvement in the virtual currency market. On February 15th the CFTC issued its first ever Costumer Advisory warning against virtual currency “pump-and-dump” schemes. Asserting its jurisdiction over cryptocurrency the original press release from the Commission reads, “the CFTC maintains general anti-fraud and manipulation enforcement authority over virtual currency cash markets as a commodity in interstate commerce.”

These type of schemes create a fabricated high demand and once enough investors or traders join they “dump,” or sell quickly defrauding investors. Cryptocurrency offered usually has high rising prices tempting investors into buying in quickly for profit, without first researching or verifying the prices. Once they’ve invested their money, the price of the cryptocurrency or token plummets leaving investors with tokens worth nothing. These can take place over just a few minutes.

The original press release about this costumer advisory detailed the adoption of the scheme into the cryptocurrency landscape, “This type of market manipulation occurs 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 warning stated that these virtual currency pump-and-dump scheme generates traction on social media, public chat rooms, and mobile messaging apps. The organizers of the scheme remain anonymous and spread rumors that urge immediate buying. The Consumer Advisory reads,

“The U.S. Commodity Futures Trading Commission (CFTC) is advising customers to avoid pump-and-dump schemes that can occur in thinly traded or new “alternative” virtual currencies and digital coins or tokens. Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes. Thoroughly research virtual currencies, digital coins, tokens, and the companies or entities behind them in order to separate hype from facts.”

This is not the first time the CFTC has issued a warning regarding virtual currency trading, but the first of this kind. The press release stated that the Commission has received complaints from victims of these type of schemes. Erica Elliott Richardson, Director of Public Affairs, explains, “Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive.”

As customary the CFTC offers tips for consumers to protect themselves,

The best protection for customers is to only purchase alternative virtual currencies, digital coins, or tokens that have been thoroughly researched. Remember:

• Don’t purchase digital coins or tokens because of a single tip, especially if it comes over social media
• Don’t believe ads or websites that promise quick wealth by investing in certain digital coins or tokens.
• Do not participate in pump-and-dump trades; market manipulation is against the law and many participants end up losing money.
• There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.

If you believe you may have been the victim of fraud, or to report suspicious activity, contact us at 866.366.2382 or visit CFTC.gov/TipOrComplaint.

In addition, the CFTC offers a hefty reward for pump-and-dump whistle blowers over $100,000:

Blow the whistle on pump-and-dump schemers Virtual currency and digital token pumpand-dump schemes continue because they are mostly anonymous. If you have original information that leads to a successful enforcement action that leads to monetary sanctions of $1 million or more, you could be eligible for a monetary award of between 10 percent and 30 percent. For more information, or to submit a tip, visit the CFTC’s whistleblower.gov website.

The original Press Release can be found here, and the Consumer Advisory here.