The U.S. Commodity Futures Trading Commission (CFTC) has issued its first warning against pump-and-dump schemes involving cryptocurrencies while giving advice on how to buy crypto. This warning follows previous warnings by two other U.S. regulators.
Pump-and-dump schemes long pre-date the invention of virtual currencies…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.
Some pump and dumps use false news reports, typically about a famous high-tech business leader or investor who plans to pour millions of dollars into a small, lesser known virtual currency or coin. Other fake news stories have featured major retailers, banks, or credit card companies, announcing plans to partner with one virtual currency or another.
Customers can best protect themselves by purchasing only alternative virtual currencies, digital coins, or tokens that have been thoroughly researched – to separate hype from facts.
Last month, the CFTC took action against three cryptocurrency operators and their founders for commodity fraud and misappropriation.
The U.S. Securities and Exchange Commission (SEC) has repeatedly warned against pump-and-dump schemes as well as market manipulations involving any financial instruments that can be classified as securities. In August, the agency issued a statement alerting investors of pump-and-dump schemes involving initial coin offerings (ICOs).
SEC Chairman Jay Clayton made a statement in December cautioning investors against "promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions," specifically those related to cryptocurrencies and ICOs. "Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of 'scalping,' 'pump and dump' and other manipulations and frauds," he described. The chairman then reiterated the same message last week.
Do your research before purchasing shares of any company offering investment opportunities in cryptocurrency…Don't be fooled by unrealistic predictions of returns and claims made through press releases, spam email, telemarketing calls or posted online or in social media threads. These actions may be signs of a classic 'pump and dump' fraud.
What do you think of the CFTC's guidance? Let us know in the comments section below.
Images courtesy of Shutterstock, CFTC, SEC, and Finra.