Don’t Be Fooled by the Pump and Dump Cryptocurrency Scam
So, you cannot find the bitcoin that you bought four years ago. Don’t overdo it by investing in shady companies that suddenly decide to “switch to blockchain,” as financial industry regulators warned investors on Thursday. Because it could just be a scam.
“Do research before buying shares of any company offering cryptocurrency investment opportunities,” wrote FINRA. “And don’t be fooled by unrealistic earnings and claims forecasts made in press releases, spam, telemarketing calls, or posted online or in social media discussions.”
The agency went as far as warning that companies promoting their cryptocurrency-related activities could be part of illegal “pump and dump” schemes, which essentially goes like this: investors “pump” or promote their shares in order to to sell it when the price rises due to increased demand. In other words, think twice before investing in Long Island Iced Tea .
Here are FINRA’s tips to avoid being scammed:
- Ignore cold calls, especially insistent ones trying to sell you cryptocurrency shares, “even if the claims seem plausible, especially if the recommended shares are very cheap.” Just hang up, or better yet, don’t answer at all.
- While Redditors and other crypto enthusiasts want you to be believed, no one can guarantee the outcome of any investment.
- You can find out if a company is filing with the SEC through the EDGAR database , which allows you to verify information that someone might have told you.
- You can file a complaint with FINRA if you think someone is trying to cheat you.
The US Securities and Exchange Commission suspended trading in several securities earlier this week, including The Crypto Company , over concerns over the accuracy of information “on compensation paid for the firm’s promotion and insider trading plans,” according to CNN Money.
The warning couldn’t have been more timely: Just as investors have been bombarded with headlines touting skyrocketing cryptocurrency price increases over the past few months, nearly all major digital currencies (with the exception of Ethereum Classic ) fell on Friday morning. Coinbase, the bitcoin marketplace, disabled buy and sell on Friday due to price flight. Bitcoin price dropped from a high of nearly $ 20,000 per coin to just over $ 15,000 on Thursday.