Australian regulator ASIC on the hunt for crypto pump and dump schemes

  • Australian financial watchdog, ASIC, has given an account of pump and dump schemes and how it has been taking them down.
  • Even though cryptocurrencies are largely unregulated, such activities remain illegal due to the financial risk they cause investors, one of the regulator’s spokespeople noted.

The Australian Securities and Investments Commission (ASIC) launched an investigation into “pump and dump” schemes in October. It focused on social channels such as Twitter, Telegram, and HotCopper – an Aussie stock chat forum.

Typically, pump and dump plots are orchestrated on social media groups, such as Telegram groups, where participants thrive on encryption and anonymity. They involve coordinating a group of people to purchase large amounts of a thinly traded token to inflate its price. Most traders who were not in on the scheme tend to follow the trend and buy in due to FOMO. At a certain agreed point, the coordinated group cashes out, leaving other investors soaking in losses.

ASIC has managed to take down several of such Telegram groups while obtaining counsel from finance academic and crypto researcher, Talis Putnins. His research shows that pump and dump groups operate in a cyclical manner, which tends to “correlate with overall market sentiment and prices.” In this sense, such groups operated vigorously in 2018 and have been seen to do the same this year.

Pursuit of pump and dump conspiracies

In 2018, Putnins documented over 355 crypto-related pump and dump cases. According to his presentation, these groups have a “transparent intention to pump” with no “genuine attempt to ignite momentum.” They are “completely out in the open for everyone to see,” he adds.

One of these schemes was orchestrated by the Telegram group “Crypto Binance Trading|Signals & Pumps.” A Sept. 13 announcement on the group reads:

With our volumes averaging 40 to 80 million $ per pump and peaks reaching up to 450% we are ready to announce our next big pump.

Our main goal for this pump will be to make sure that every single member in our group makes a massive profit. We will also try reaching more than 100 million $ volume in the first few minutes with a very high % gain.

The same researcher co-authored similar research last year entitled “A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets.” The report concluded that pump and dump conspiracies have created “extreme price distortions of 65 percent on average, abnormal trading volumes in the millions of dollars, and large wealth transfers between participants.”

The aforementioned group took action on Sept. 19, with the Frax Share token (FXS) seeing $65 million in volume, and gaining a massive 90 percent feat in just a minute.

Side notes

Putnins notes that such groups harbor the shared “perception that crypto is unregulated therefore pumps are legal.”

In October, ASIC posted a warning on another 300-member pump and dump group, ASX Pump Organization. It notes that the activity was illegal and that group members were being monitored. Additionally, participants ran the risk of criminal record, a $1M+ fine, and prison time.

At the time, a spokesperson from ASIC pointed out that even though crypto was largely unregulated, such arrangements remain illegal since they “can lead to investor losses and create unnecessary price volatility.”

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