A six-month investigation by the Wall Street Journal, that examined crypto exchange data and online communications between traders, claims to have found 175 “pump-and-dump” schemes for 121 different crypto-tokens.
In total, say WSJ writers Paul Vigna and Shane Shifflett, this generated $825 million worth of trade and caused “hundreds of millions in losses for those caught on the wrong side.”
The two journalists, who looked at trading patterns on key crypto exchanges from January to July in 2018, say they identified 121 coins that experienced steep prices rises and then, within minutes, sharp falls. A pump and dump scheme, wrote Vigna and Shifflett, is “one of the oldest types of market fraud: Traders talk up the price of an asset before dumping it for a profit and leaving fooled investors with shrunken shares.”
Made illegal in the 1930s, pump and dump schemes were prevalent again in the 1990s and were a core theme in the film Wolf of Wall Street, starring Leonardo Dicaprio and based on the corrupted trading life of New York broker Jordan Belfort.
Today’s pump and dump hustlers, according to the WSJ article, gather not in the “boiler rooms” of Belfort’s day but in encrypted messaging group chat forums.
Vigna and Shiffett’s commendably detailed investigation found one such group, called “Big Pump Signal,” that had 74,000 members and used both the Signal and Discord messaging apps and the groups would use these apps to pre-arrange dates and times to target minor “altcoins.” Big Pump Signal, say the reporters, coordinated, “26 pump operations that saw $222 million in trades.”
More than half of the most pumped coins ultimately lost value, which, says the WSJ, means investors not in on the “pump” were scammed.
Earlier this year, multiple Washington agencies significantly stepped up investigations into crypto-currency fraud. In May, the US Department of Justice announced it was working with the Commodity Futures Trading Commission and the US Securities and Exchange Commission to open a criminal probe into traders manipulating the price of digital currencies.
Also in May the North American Securities Administrators Association announced its members had, in the preceding two months, carried out 70 state- and provincial-level investigations into crypto-currency scams and fraudulent ICOs, and this, said the association, was “just the tip of the iceberg.”
Dubbed Operation Crypto-sweep, the investigations received the full public support of the US Securities and Exchange Commission, with SEC Chairman Jay Clayton saying it “should be a strong warning to would-be fraudsters in this space that many sets of eyes are watching, and that regulators are coordinating on an international level to take strong actions to deter and stop fraud.”
In recent months increasing numbers of academics have also started publishing papers about crypto exchange manipulation and market fraud.
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