by C. Edward Kelso
February 18, 2018
The US Commodity Futures Trading Commission (CFTC) has created a bounty to encourage whistleblowers coming forward in exposing “pump-and-dump” schemes. “Customers should not purchase virtual currencies, digital coins,” the CFTC warned, “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.”
To eat at scammers’ anonymity at least, the CFTC is offering, “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.”
Customer Advisory: Beware Virtual Currency Pump-and-Dump Schemes is a two-page effort from the CFTC, “advising customers to avoid pump-and-dump schemes that can occur in thinly traded or new ‘alternative’ virtual currencies and digital coins or tokens.”
As these pages have long documented, scams and schemes of old are reappearing anew in a space filled with inexperienced investors. For those familiar with, say, the American stock market experience, boiler room cold calls of yore, penny stocks, hot tips, and sure things are all haunting phrases investors have encountered at one time or another.
The ubiquity of message boards and of stock trading websites only encouraged scammers in this regard. Price action moved on pumps, on posts and general chatter about the potential of a given stock only a few were privy. Greed did the rest. Regulatory bodies in the US have had enough time to see their likes come and go.
Old Wine, New Bottle
And while such scams seem new under the cloak of hip lingo such as cryptocurrency and blockchain and disruptive and game changer, it’s all pretty much the same old dance. Indeed, “Pump-and-dump schemes have been around long before virtual currencies and digital tokens. Historically, they were the domain of ‘boiler room’ frauds that aggressively peddled penny stocks by falsely promising the companies were on the verge of major breakthroughs, releasing groundbreaking products, or merging with blue chip competitors.”