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

The Australian Securities and Investments Commission (ASIC) launched an investigation into pump and dump systems in October. It focused on social media like Twitter, Telegram and HotCopper, an Australian stock chat forum.

Pump-and-dump scams are typically carried out in social media groups like Telegram, where the criminals benefit from encryption and anonymity. A group of people is coordinated to buy large quantities of a little-traded token and to drive the price up through this simulated increasing demand. Most traders, who of course are not privy to the fraud scheme, tend to follow the emerging trend and buy on the basis of “FOMO” – F ear o f M issing O ut. At a certain agreed time, the criminal group cashes in and the other investors are left with their losses.

The ASIC has succeeded in smashing several such Telegram groups, taking advice from the financial scientist and crypto researcher Talis Putnins. His research shows that pump-and-dump groups operate in a cyclical fashion that tends to correlate with general market sentiment and prices. With that in mind, such groups were very active in 2018 and it has been observed that this was also the case in 2021.

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Prosecution of pump-and-dump scams

In 2018 Putnins documented over 355 crypto-related pump-and-dump cases. His conclusion: These criminal groups have a “transparent intention to pump” without “making a real attempt to create a dynamic”. They are “completely open and visible to everyone,” he says.

For example, one of these systems was staged by the Telegram group “Crypto Binance Trading | Signals & Pumps”. An announcement dated September 13, 2021 in this group read:

“With an average volume of $ 40 million to $ 80 million per pump and peaks of up to 450%, we are ready to announce our next big pump. Our main goal for this pump will be to ensure that every single member in our group makes a massive profit. We will also try to reach a volume of more than 100 million dollars in the first few minutes, with a very high percentage profit. “

The same researcher co-authored a similar study last year entitled “A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets ”. The study concludes that pump-and-dump fraud caused “extreme price distortions averaging 65%, abnormal trading volumes in the millions, and large capital transfers between participants.”

The aforementioned group took action on September 19, when the Frax Share Token (FXS) was worth $ 65 million and grew 90% in just one minute.

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Putnins notes that members of such criminal organizations share the “perception that crypto is unregulated and that pumps are therefore legal”.

In October the ASIC published a warning against another pump-and-dump group with 300 members, the “ASX Pump Organization”. It stated that the activities were illegal and that group members were being monitored. Participants face fines in excess of one million dollars and prison terms.

An ASIC spokesman pointed out that although cryptocurrencies are largely unregulated, such agreements are still illegal because they “can lead to investor losses and create unnecessary price volatility.” Case of deliberately engaging in an error that leads to financial loss, in short: fraud.