Friday, February 16, 2018

Investors Warned of Cryptocurrency ‘Pump-and-Dump’ Schemes By Gabriel T. Rubin

WASHINGTON—Regulators on Thursday warned consumers to beware of “pump-and-dump” manipulation schemes in virtual-currency markets as they try to rein in misconduct on unregulated spot exchanges.
The guidance from the Commodity Futures Trading Commission targets schemes that rely on coordinated efforts to create phony demand for cryptocurrencies, followed by schemers quickly selling their stakes to take advantage of the inflated prices.
The CFTC advisory is part of a broader consumer-education effort related to virtual currencies such as bitcoin, which have seen a swell of interest from retail investors in recent months.
“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 spokeswoman Erica Richardson.
The advisory came in response to complaints the CFTC has received from consumers who say they have lost money in pump-and-dump schemes.
The CFTC has tried to strike a balance between supporting the growth of virtual-currency derivatives and blockchain-based applications while warning investors about the risks of investing in the underlying currencies, citing extreme volatility and opaque, unregulated exchanges that are prone to cyberattacks.
The agency treats virtual currencies like commodities, but as with other commodities, it mostly lacks jurisdiction over the primary market: It regulates corn futures contracts but not the buying and selling of corn itself, for instance. But the CFTC can use its enforcement powers to target manipulation of underlying markets if it would have an effect on derivatives contracts.
Last month, the CFTC brought charges in three cases involving virtual currencies, alleging that defendants fraudulently solicited customers and violated other commodity laws and regulations.
Write to Gabriel T. Rubin at

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