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.