Be Aware Of and Avoid Pump-and-Dump Schemes That Can Occur in Thinly-Traded or New Virtual Currencies, Digital Coins or Tokens

Do 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 their Related Companies or Entities

On February 15, 2018, the Commodities Futures Trading Commission announced the issuance of its first Customer Protection Advisory warning customers to beware of, and avoid, pump-and-dump schemes than can occur in thinly traded or new “alternative” virtual currencies, digital coins or tokens.

According to the CFTC’s announcement and Customer Protection Advisory, pump-and-dump schemes are mostly anonymous and are organized in public chat rooms or via mobile messaging apps. The pump-and-dump schemes are coordinated efforts to create phony demand (the “pump”) before quickly selling (the “dump”) to profit by taking advantage of traders who are unaware of the scheme. 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.

While pump-and-dump scams are not new, the number of new virtual currency and digital coin traders has grown substantially, increasing the number of potential victims or unwitting perpetrators.

Customers should avoid purchasing virtual currency or tokens based on tips shared over social media. The organizers of the scheme will commonly spread rumors and urge immediate buying. Victims will commonly react to the currency’s or token’s rising prices, and not verify the rumors. The dump then begins, the price falls, and victims are left with currency or tokens that are worth much less than what they expected in a scam which can be over in a few minutes.

“As with many online frauds, this type of scam is not new – it simply deploys an emerging technology to capitalize on public interest in digital assets,” said CFTC Director of Public Affairs Erica Elliott Richardson. “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 best protection for customers, according to the CFTC, is to only purchase alternative virtual currencies, digital coins, or tokens that have been thoroughly researched.  Further, it is important to remember:

Not to purchase digital coins or tokens because of a single tip, especially if it comes over social media.
Not to believe ads or websites that promise quick wealth by investing in certain digital coins or tokens.
Not to participate in pump-and-dump trades; market manipulation is against the law and many participants end up losing money.
NOTE: 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.


Kehoe Law Firm, P.C.