The US Commodity Futures Trading Commission (CFTC) has issued an advisory warning people of pump-and-dump schemes that can occur in thinly traded or new “alternative” virtual currencies and digital coins or tokens. The CFTC advises investors to avoid buying such instruments based on social media or messaging app tips or sudden price spikes.
The pump-and-dump schemes are an old scam, that usually involved stock of small companies and “boiler rooms”. They would peddle the stocks of little value to unsuspecting and inexperienced investors with the promise that the price will rise. The more people bought it, the higher the price goes, until the “boiler room”, which also has some of the shares, dumps it and the price crashes. The investors are left with worthless stock.
Now, CFTC notes, there is no need of boiler rooms and stocks. Instead the scheme is using small and virtually unknown altcoins and social media, apps and chat rooms. The regulator gives an example of such a scheme, that usually is over in minutes, with the scammers cashing in, leaving everyone else with some worthless coins:
“On the day of the scam, the organizer counts down the buy signal: “15 mins left before the pump! Get ready to buy” “5 minutes till pump, next message will be the coin! Tweet about us and send everyone the link to telegram (sic) for outsiders to see what we are pumping so they can get in on the action too!! lets (sic) take it to the MOON!!!!!”
Sometimes the scammers also use fake news 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. Usually those fake news are accompanies by urges to buy now.
The CFTC notes that it is receiving numerous complaints against such schemes, but there is little it can do, as the cryptocurrency market is unregulated. Instead, the watchdog advises people to avoid buying largely advertised altcoins and/or ICOs and do proper research before investing.