CFTC Issues Pump-and-Dump Virtual Currency Advisory

CFTC Issues Pump-and-Dump Virtual Currency Advisory

The Commodity Futures Trading Commission (CFTC) warned the public to beware of and avoid pump-and-dump schemes that can occur in thinly traded or new “alternative” virtual currencies, digital coins or tokens. These pump-and-dump schemes are generally 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. The CFTC suggested that potential 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.

Led by former CFTC Senior Trial Attorney Braden Perry, Kennyhertz Perry attorneys regularly advise clients on emerging commodity, futures, and derivatives issues, including the evolving regulatory landscape of virtual currencies.

Kennyhertz Perry attorneys also assist institutional and high net worth investors on investment due diligence, especially in alternative or emerging markets.  “Because these ICOs are not technically regulated by the SEC, the promotional materials for these investments have not gone through the same approval process as regulated products,” Perry says. “First, investors should review everything and critical judgments and decisions in the investment process essential. Investors that utilize proper due diligence will not appreciate unnecessary surprises, especially when it comes to money or money management. There is likely no required disclosure of certain information on the company ownership, financials, business plan, and other information to protect investors,  so the due diligence on additional detail on the business activity and specifics regarding the who, what, when, where, and how are critical. Potential investors will ask if there are compliance risks, regulatory risks, or legal issues.”

At Kennyhertz Perry, we understand that critical judgments and decisions in the investment process essential. Whether it’s stocks, bonds, real estate assets or any other type of financial commitment, the more research and preparation that is done on that investment, the better. Proper due diligence requires creativity coupled with common sense for any unnecessary surprises to be avoided, especially when it comes to money. Kennyhertz Perry regularly counsels potential investors in many areas and can assist in the due diligence process.

About Braden Perry

Braden Perry is a litigation, regulatory and government investigations attorney with Kennyhertz Perry, LLC. Mr. Perry has the unique tripartite experience of a white-collar criminal defense and government compliance, investigations, and litigation attorney at a national law firm; a senior enforcement attorney at a federal regulatory agency; and the Chief Compliance Officer/Chief Regulatory Attorney of a global financial institution. Mr. Perry is a Certified Anti-Money Laundering Specialist (CAMS) and has extensive experience advising clients in government inquiries and investigations, particularly in enforcement matters involving emerging or novel issues. He couples his technical knowledge and experience defending clients in front of federal agencies with a broad-based understanding of compliance from an institutional and regulatory perspective.

About Kennyhertz Perry, LLC

Kennyhertz Perry, LLC is a business and litigation law firm representing clients in highly regulated industries. The firm was founded by two veteran Kansas City attorneys, John Kennyhertz and Braden Perry. To learn more about the firm, visit kennyhertzperry.com.