Commodity Futures Trading Commission issues advisory for virtual currency pump-and-dump schemes
Richard Rosenfeld, Alex Lakatos, David L. Beam, Jennifer Carlson, Nina Flax, Philip Niehoff, Matthew Bisanz, Nicholas McCoy · Journal of Investment Compliance · 2018
Purpose The purpose of this paper is to explain innocent actors in the virtual currency space (e.g. virtual currency exchanges, financial institutions, social media platforms) and how to avoid potential exposure because of the misconduct of users or customers. Design/methodology/approach Explains how pump-and-dump securities and commodities fraud schemes work, explains the Commodity Futures Trading Commission’s warning to consumers about how to avoid being victimized by schemers running pump-and-dump schemes in the virtual currency space, explains how innocent well-meaning actors may – because of misconduct by their customers or users – be at risk of exposure to victims of pump-and-dump schemes and provides practical guidance for avoiding these dangers and remediating problems. Findings Market participants must protect their reputations, and they cannot rely on the government to do so for them. Moreover, because investors who fall prey to fraud may be unable to recover from fraudsters, such investors may seek to recover from innocent market participants. Accordingly, market participants should take precautionary measures to avoid being used by fraudsters. Originality/value Practical guidance from experienced securities and financial services litigators.