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How to Avoid Crypto, Bitcoin ‘Pump and Dump’ Scams
Submitted by DerekFlinn » Sun 28-Nov-2021, 12:36Subject Area: General | 6 member ratings |
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The most recent warning comes from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). While neither agency regulates cryptos, they are warning about emerging scams.
“Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes,” the agencies caution. Describing the fraud as an “old scam, new technology,” the CFTC warned that “same basic fraud is now occurring using little known virtual currencies and digital coins or tokens.”
These days, though, you can’t escape cryptocurrency advertising. It’s everywhere on mobile devices and online. Everyone wants to sell you some kind of cryptocurrency and make you rich overnight.
How do “Pump and Dump” schemes work? Here’s the CFTC’s description:
— “Historically, they were the domain of “boiler room” frauds that aggressively peddled penny stocks by falsely promising the companies were on the verge of major breakthroughs, releasing groundbreaking products, or merging with blue chip competitors.
— As demand in the thinly traded companies grew, the share prices would rise. When the prices reached a certain point, the boiler rooms would dump their remaining shares on the open market, the prices would crash, and investors were left holding nearly worthless stock.
— Some pump and dumps use false news reports, typically 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.
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