US government agency takes first action against pump-and-dump scams

US government agency takes first action against pump-and-dump scamsThe US Commodity Futures Trading Commission (CFTC) has announced its first action against the infamous “pump-and-dump” cryptocurrency scam. It did so with pecuniary and civil penalties, as well as with orders and injunctions.  

In a statement released Monday, July 18, 2022, the CFTC reports that Judge John Koeltl of the United States District Court for the Southern District of New York has issued a consent order and a permanent injunction, as well as a civil fine and a fair reparation to Jimmy Gale Watson, Jr. who allegedly acted alongside John McAfee, who passed away last year, to defraud hundreds of people.

According to the CFTC, Gale Watson, Jr. worked side-by-side with McAfee on a scheme that was flagged as a scam in March 2021. According to the agency, both people were hiding monetary positions and "deceptively" promoting tokens on social media. media like a long-term investment, which were then sold for more than $ 2 million in profit, according to the CFTC itself.  

For this, Gale Watson Jr. will have to repay "all profits from the scheme" in full. In addition, he will have to pay a civil penalty of the same amount. In addition, he will be prohibited from trading in derivatives markets and from registering with the CFTC.

What is pump-and-dump?

The pump-and-dump is a scheme in which scammers spread false information about a particular asset, at the cost of “pumping” investor interest and driving up the price. The scammers then liquidate or dump the asset at the artificially inflated price before the price goes down, keeping the funds in question for themselves. 

This type of scam boomed in 2018 when Initial Coin Offerings (ICOs) emerged. At the time, there were numerous reported cases of projects disappearing without a trace after raising thousands of dollars from investors, which attracted the greatest attention from regulators. 

According to the US government agency CFTC, this is a "fraudulent and manipulative" scheme, capable of being "more serious" when it targets "more vulnerable" retail investors, who are mostly lured by bad actors who “They promise quick riches”. Since 2018, the government agency has denounced the existence of such schemes.

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