In its first customer protection advisory regarding pump-and-dump scams involving virtual currencies, tokens, or digital coins, the US Commodity Futures Trading Commission cautioned that even seasoned investors could be targeted. The regulator recommended that customers do a good job of researching prospective investments, learn the signs of possible investment fraud, and stay away from investments that “they don’t fully understand.”
Pump-and-dump scams typically involve raising the demand for a stock, and as a result, its share price, before dumping whatever shares are left so that the stock price drops. Remaining investors are left with practically worthless stock while the fraudsters usually have made a profit from dumping (selling) their shares when the stock price was still high. The CFTC is cautioning that this same fraud is now being used with virtual currencies.
Online message boards, mobile messaging applications, and other new technologies are now taking the place of boiler rooms to handle the solicitation of money from prospective investors, with some chat rooms holding thousands of members. It is also that fake news about these virtual investments is being published.
To protect from virtual currency Pump-and-Dump scams, the CFTC is warning customers to:
· Stay away from buying digital currency or tokens merely based on one tip, especially if social media is the source of that information.
· Disregard websites or ads touting the rapid accrual of wealth by investing in certain virtual tokens or coins.
· Avoid pump-and-dump trading, which is illegal and often leads to investor losses.
The CFTC, in its alert, reminded customers that guaranteed returns are not real and they should stay away from anyone claiming there is no risk of loss involved with an investment.
Last month, the regulator brought charges against CabbageTech Corp. over an alleged virtual currency fraud. It made similar allegations against The Entrepreneurs Headquarters Ltd., alleging Bitcoin fraud.
CFTC Steps Up Enforcement Efforts
In other CFTC news, the Wall Street Journal reports that an individual familiar with the regulator’s enforcement operations said that the agency has enhanced its enforcement efforts after it experienced a significant decline in enforcement actions and fines during the fiscal year that included the transition period between President Obama’s administration and that of President Trump.
During the fiscal year concluding last September, the CFTC brought 49 enforcement actions. The fiscal year before that it brought 68 actions. Penalties, disgorgement, and restitution for the fiscal year ending Sept 30 was $413M. The fiscal year before that the collective amount was $1.29B.
This fiscal year, so far, the CFTC has filed nearly a dozen cases alleging manipulation. The regulator is also continuing to pursue spoofing cases, including a joint one brought last month with the Department of Justice accusing eight traders of engaging in deceptive trading in the futures market. The traders worked for Deutsche Bank (DB), UBS (UBS), and other firms. Civil charges were brought not just against the traders but also the two banks, along with HSBC (HSBC).
Deutsche Bank settled the commodities fraud charges related to the alleged rigging of precious metal futures prices for $30M. UBS settled for $15M, while HSBC settled for $1.6M.
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Ex-Morgan Stanley Executive is Sentenced in Multimillion-Dollar Fraud That Targeted Widow, Stockbroker Fraud Blog, February 9, 2018
FINRA Orders Citigroup to Pay $11.5M, Including at Least $6M to Investors, Over Inaccurate Stock Research Ratings, Stockbroker Fraud Blog, December 29, 2017
Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales, Institutional Investor Securities Blog, November 8, 2017