US CFTC Warns Cryptocurrency Investors Anew of Pump and Dump Schemes

Feb 16, 2018 at 12:16

The United States Commodity Futures Trading Commission (CFTC) issued an advisory warning investors to avoid pump-and-dump schemes related to cryptocurrency investments.

The advisory published by the chief US market regulator, urged investors to conduct their own research before investing in cryptocurrencies particularly on those with small market caps and illiquid markets.

“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,” the CFTC expressed in its warning.

The bulletin also detailed that groups of traders orchestrate pump-and-dump schemes intended to manipulate the price of individual cryptocurrencies, often through the use of fraudulent tactics such as spreading inaccurate or misleading news reports on social media.

“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… 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,” CFTC director of public affairs, Erica Elliott Richardson said in a statement.

The agency’s bulletin also mentioned that under the current law, the CFTC cannot directly police the spot markets but can able to investigate fraud and market manipulation, an authority which extends to cryptocurrency exchanges.

It can be recalled that in a recent Senate hearing, CFTC chairman, J. Christopher Giancarlo advised legislators that any new federal regulations on cryptocurrency exchanges should be carefully tailored to address specific risks in the spot markets.

Meanwhile, Republican CFTC commissioner, Brian Quintenz encouraged virtual currency industry stakeholders to adopt self-regulatory standards and best practices as legislators are still mulling whether if there is a need for an oversight of the industry at the federal level.

It can be recalled that the prevalence pump-and-dump schemes related to virtual currency also prompted Facebook to ban cryptocurrency-related advertisements across all of its platforms.