Pump and dump schemes
A common way people manipulate cryptocurrency prices is by orchestrating a pump and dump scheme. Groups create pump and dump schemes by coordinating on messenger services like Telegram and WhatsApp. The members of the group agree to individually purchase an alt coin to quickly inflate the price and make the coin more attractive to others. After members of the general public who are not involved in the scheme notice the growth and invest in the alt coin, the group dumps or sells their coins simultaneously to share the profit, leaving the uninvolved investors to take a loss.
When a new coin is about to launch, the company will typically allow investors to purchase in-house coins during the initial coin offering (ICO) phase. Investors make the initial investment based on the expectation that the company will further develop the coin and eventually make it available to the public. In response to the rapidly accelerated public interest in cryptocurrency, scammers quickly found ways to make money off of fraudulent ICOs. Groups began posing as companies offering ICO opportunities. Instead of making the coin available to the public, the group simply disappears with the investors’ money, and they never develop the coin as originally advertised.
Related white collar crimes
Currently, there is no single statute that alone regulates all cryptocurrency crimes. Therefore, people who are caught advancing cryptocurrency scams are typically charged with a related offense under federal law. For example, virtually all cryptocurrency scams require the fraudster to commit wire fraud as he or she is highly likely to be receiving electronic payments from investors or customers. Organized crime groups and individuals who receive payment for illegal activity through cryptocurrency transactions may be charged with money laundering. People who operate illegal exchanges may be accused of securities fraud. Nowadays, Ponzi schemes exist in the world of virtual currency as more people are now using crptocurrency as an investment vehicle. Virtually all cryptocurrency scams also involve at least one other white collar crime that is specifically prohibited by federal law. Because many schemes involve multiple offenses, the penalties can add up very quickly if convicted.
Federal law and cryptocurrency scams
Cryptocurrency scams are investigated by the federal government via the Securities Exchange Commission (SEC). Cases that involve tax evasion may also be investigated by the IRS while other instances may call for cooperation with the FBI. The SEC has determined that digital coins are securities and are, therefore, subject to federal securities laws. To better allow the government to track transactions and crack down on fraud, the SEC now labels certain people and entities as “money transmitters,” depending on the role they play in the cryptocurrency market. Money transmitters must now meet stricter registration requirements in order to remain in compliance with SEC rules. The SEC has also clarified that those who engage in pump and dump schemes may be considered to be artificially manipulating the market in a manner that violates federal law.
Getting help from the right lawyer
Cryptocurrency cases are often very technical in nature. Therefore, those who are accused of participating in a cryptocurrency scheme require an attorney who has experience with cryptocurrency cases in addition to professional relationships with experts who work with virtual currency and related technology. Individuals who are accused of cryptocurrency fraud are strongly advised to contact a West Palm Beach cryptocurrency fraud defense lawyer as soon as it is presumed that an investigation is underway. Contacting a lawyer as early as possible can afford the client the protection of a seasoned qualified legal advocate and the critical legal counsel that is needed to understand the complicated criminal law process as it relates to an area of law that is still under development.