The CFTC Warns of Pump and Dump Schemes and Offers Monetary Rewards For Whistle Blowers

If you've spent anytime on social media where discussions of cryptocurrencies are held you have definitely spotted the growing amount of crypto scams. Following the recent trend of impersonating well known personalities in the crypto industry and offering fake giveaways, the good ol' pump and dump groups have been spamming their discords and telegrams in recruit of new users.

The United States CFTC (Commodity Futures Trading Commision (CFTC) has published a customer advisory addressing pump and dump schemes. The advisory states pump and dumps are an old scam taking advantage of new technology and being exasperated by the new mediums of social media.

A typical pump is described as having organizers count down buy signals and communicating the information to hundreds and thousands of ready buyers.

“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 for outsiders to see what we are pumping so they can get in on
the action too!! lets take it to the MOON!!!!!”

Once the signal is announced, participants scramble to purchase the selected coin as cheap as possible and immediately sell once the price gets pumped to an exorbitant target amount. The whole scheme can be over in a matter of minutes and while some may manage to have an insane ROI, many who arrived a second too late are left holding bags.

Popular pump and dump group with around 10,000 members

The problem with pump and dump groups is there are usually a few layers where the small minority profit the most from the loss of the majority members of the group. In order for people to be able to sell at such pumped prices, there needs to be buyers. It's a popular lie for organizers to explain to their group members that profits will come from outside investors seeing a coin surging and buying in unaware of the soon-to-come dump. The fact is, most of these schemes are over within 5 minutes and the only profits are from bottom level members of the group. There is a hierarchy in pump and dump groups which determine who gets the notice of the buy signal first.

The group organizers are in the best position as they determine which coin will be pumped, and stack up on the coin while it's still cheap. The second level may include friends, family, people with personal or business relationships with the organizers. The third level may be a paid tier where people may donate to join TA and pump signal groups or be paid members of a Patreon. The last level are the bagholders. This group will usually receive the buy signal after all 3 levels before them have bought in. While some may manage to get in quick and still make a nice profit off other unlucky bagholders, this is who the higher level members will dump their bags on and take their profits from.

Pump and dump scams have been around since the beginning of the stock markets. The cryptocurrency market is growing so fast there has been a considerable amount of new and inexperienced investors joining in and falling victim to these type of scams.

The CFTC have noted they have received many complaints from customers who lost money to pump and dump groups. At the current moment cryptocurrency is unregulated and as the CFTC does not have authority over the market, they still maintain general anti-fraud enforcement authority over virtual currency cash markets as a commodity in interstate commerce.

The CFTC included a few helpful tips in their customer advisory report.

Protect Yourself

The best protection for customers is to only purchase alternative virtual currencies, digital coins, or tokens that have been thoroughly researched. Remember:

• Don’t purchase digital coins or tokens because of a single tip, especially if it comes over social media.
• Don’t believe ads or websites that promise quick wealth by investing in certain digital coins or tokens.
• Do not participate in pump-and-dump trades; market manipulation is against the law and many participants end up losing money.
• There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.

In addition the CFTC has pretty much put a bounty on valuable information that leads to successful enforcement action of scams with monetary sanctions of $1 Million or more.

Whistle blowers are enticed with a monetary award of between 10-30% for original information that results in prosecution. Many pump and dump groups may want to think twice about who they're recruiting into their operations. Information and any tips should be sent via the CFTC whistleblower.gov website.

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