Not all elements of the crypto craze have been positive, as evidenced by the growing number of ‘pump and dump’ scams. 2017 has seen a noticeable uptick in the number of cryptocurrency-related stock scams, prompting the US’ Financial Industry Regulatory Authority (FINRA) to warn the public against them.
Cryptocurrencies such as Bitcoin and Ethereum have been amongst some of the most popular trading instruments in recent memory. However, these cryptos are still largely misunderstood by the general public, which leads to the perfect environment for abuse by fraudsters.
Prospective investors looking for exposure into cryptocurrencies have flocked to legitimate exchanges in the United States, but crypto scams remain commonplace. This includes buying shares of companies that guarantee unrealistically high returns with cryptocurrencies, namely Bitcoin.
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To the uninformed or novice investor, huge returns may in fact seem plausible given the rapid increase in Bitcoin in 2017. Bitcoin has repeatedly set all-time highs, nearly overtaking $20,000 earlier this month. Compounding these concerns are unsubstantiated claims backing such products or services – this includes a bombardment of spam email, telemarketing calls, and other social media posts.
However, investors should be wary of these telltale signs surrounding stocks as they usually signify pump and dump scams. The goal of a pump-and-dump scam is to artificially inflate the price of a given stock via false statements that create unwarranted demand for the company’s shares.
With the share prices inflated, fraudsters then sell their shares, leaving investors with worthless stock. In the United States, stocks are targeted in such a manner, given that they are the most commonly held investment among investors nationwide, per a FINRA Investor Education Foundation.
Gerri Walsh, FINRA’s Senior Vice President for Investor Education, commented: “It can be difficult for investors to avoid the lure of the cryptocurrency markets, especially when prominent people express interest in it, and news reports and social media tout the promise of guaranteed quick fortunes and skyrocketing returns. But it is important to do your research. Even when legitimate companies enter a hot, new sector, con artists almost always follow suit.”
Investors are advised to tread cautiously and avoid dealing with any such suspicious activity – this includes responding to cold calls or being persuaded by sales pitches that stress immediate action. Individuals are also urged to access FINRA’s register to verify the professional background of any entity in the United States.