February 15, 2018

CFTC Issues First Pump-and-Dump Virtual Currency Customer Protection Advisory

CFTC Warns Customers to Avoid Pump-and-Dump Schemes

Washington, DC — The Commodity Futures Trading Commission (CFTC) today issued a Customer Protection Advisory that warns customers to beware of and avoid pump-and-dump schemes that can occur in thinly traded or new “alternative” virtual currencies, digital coins or tokens.

"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 Director of Public Affairs Erica Elliott Richardson. "Pump-and-dump schemes long pre-date the invention of virtual currencies, and typically conjure the image of penny stock boiler rooms, but customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive. The CFTC encourages all customers to thoroughly research potential investments, stay informed about tactics commonly used in investment fraud, and avoid investment opportunities they don't fully understand."

Pump-and-dump schemes are mostly anonymous and are organized in public chat rooms or via mobile messaging apps. They are coordinated efforts to create phony demand (the pump) and then sell quickly (the dump) to profit by taking advantage of traders who are unaware of the scheme. This type of market manipulation occurs in the largely unregulated cash market for virtual currencies and digital tokens, and typically on platforms that offer a wide array of coin pairings for traders to buy and sell.

Customers should avoid purchasing virtual currency or tokens based on tips shared over social media. The organizers of the scheme will commonly spread rumors and urge immediate buying. Victims will commonly react to the currency’s or token’s rising prices, and not verify the rumors. Then the dump begins. The price falls and victims are left with currency or tokens that are worth much less than what they expected. From beginning to end, these scams can be over in just a few minutes.

CFTC Has Received Complaints

The CFTC has received complaints from customers who have lost money to pump-and-dump schemes, and the CFTC maintains general anti-fraud and manipulation enforcement authority over virtual currency cash markets as a commodity in interstate commerce.

Customers Can Protect Themselves

Customers can best protect themselves by purchasing only alternative virtual currencies, digital coins, or tokens that have been thoroughly researched – to separate hype from facts. The bottom line: Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes. For more virtual currency resources, visit the CFTC’s dedicated virtual currency web page, cftc.gov/bitcoin.

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See the CFTC’s Other Customer Protection Fraud Advisories

The CFTC has issued several other customer protection Fraud Advisoriesthat provide the warning signs of fraud, covering such investments as precious metals, foreign currency commodity pools, binary options, and systems sold on the Internet, among others.

Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

Last Updated: February 15, 2018