On February 15th, the US Commodity Futures Trading Commission (CFTC) issued an official directive warning customers to avoid cryptocurrency pump-and-dump schemes. More significantly, they are offering as much as 30% of the monetary sanctions recuperated from perpetrators as a direct result of whistleblower actions.

source: cftc.gov

WHAT IS A CRYPTO PUMP AND DUMP?

Cryptocurrency pump-and-dump schemes are commonly found on chat platforms such as Discord and Telegram. Large groups of users (2,000+) coordinate a targeted pump on thinly traded smaller market cap altcoins,. This leads to a window as small as 30 seconds for buyers to take profit. Nefarious tactics are often used, such as ringleaders in the operation pre-purchasing the coin to sell into their community’s buy orders for large profits.

Example of a cryptocurrency pump & dump group lead-up announcements to the event

The coin (GAM) to be pumped and dumped is displayed in an image to avoid bot abuse

The coin in question (GAM) saw a ~5% pump from 19h15 (time of the announcement) to 19h33, before immediately dropping back to pre-pump levels.

Red arrow indicates the exact time when the coin for the pump was announced

The example shown above is purely for educational purposes on the mechanics of a pump-and-dump group. It is not representative of the huge losses that can be incurred in blindly following anonymous instructions. More “successful” pumps are paired with fake news and interest being generated on social media in order to lure unsuspecting outsiders to pump the coin further, and ideally fill the buy side of the books when it comes time for the dump.

In line with an SEC report issued earlier this year, the CFTC recommends that customers ought to only purchase “alternative virtual currencies, digital coins or tokens that have been thoroughly researched” and not base purchasing decisions on social media tips or sudden price spikes.

HOW TO BE A WHISTLEBLOWER AND CASH IN

When considering the wording of the CFTC announcement, it’s clear that cashing in on the bounty is not as simple as hotlinking the Telegram invite to that pump-and-dump group you saw advertised on Twitter. To be a whistleblower requires a report of insider knowledge into the activities in question, and the ability to produce evidence that implicates a particular individual/group of individuals who have the funds to pay the monetary sanctions imposed.

Let’s break down the keywords:

“If you have original information that leads to a successful enforcement action that leads to monetary sanctions of $1 million or more, you could be eligible for a monetary award of between 10 percent and 30 percent”.

That’s a lot of conditionals.

Original information: This is legalese for something not publicly available, i.e personal information of the pump-and-dump group ringleader(s) that can lead to their capture.

Successful enforcement action: The original information you provide must be sufficient to link the suspect in question to the pump-and-dump scheme, circumstantial evidence is not sufficient. More significantly, another parameter of successful is that the monetary sanctions listed must be recuperated from the perpetrator, not simply imposed.

Compensation only with monetary sanctions of $1 million or more: If you manage to provide original information, and that original information leads to successful enforcement action, and that leads to a “paltry” sum of $800,000 in monetary sanctions recuperated, you won’t see a dime for your efforts.

You could be eligible: This allows compensation to be issued solely at the discretion of the CFTC regardless if all the boxes above are ticked

While the reward may be difficult to collect, the shift in focus by regulatory agencies to nefarious targets in the crypto space is a welcome evolution from ineffective & unwarranted regulation aimed towards decentralized cryptocurrencies such as Bitcoin.

By Daniel Dalton via Crypto Insider