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Would this go away with more regulation? Is it fraud?

by lixtra 9y ago

pcwalton 9y ago
Pump and dump is absolutely fraud (as it requires deception to work--note the "promote on social media" step), and you can go to prison for it. Jordan Belfort, the "Wolf of Wall Street" mentioned in the title, did.
- lixtra 9y ago
  So how is it different from Bitcoin? Except for time scale? Is it the dump part?
  - pcwalton 9y ago
    Promoting investment in Bitcoin can (in theory) be legitimate if you sincerely believe that Bitcoin has real value. By contrast, pump and dump schemes involve lying about a security you know to be worthless (or at least worth far less than what you're saying). The fact that you dump it immediately makes it easy to prove this.
- spunker540 9y ago
  I think if these were regulated securities being traded on regulated exchanges it certainly would be fraud and a jailable offense. But is it fraud for something like collectible beanie babies? (as far as I can tell that is basically how cryptocurrencies are regulated right now in the US).
  - pcwalton 9y ago
    If you make money by getting groups together to sell Beanie Babies falsely claiming that you have insider info that the fad is going to make a comeback, that is fraud, and you can go to prison for it.
    - spunker540 9y ago
      So I couldn’t legally advertise alongside marked up collectibles that “the fad is coming back!” Or I just couldn’t legally collaborate with others to do so? I feel like it’s not necessarily a false claim, just a hopeful one. As a corollary every company in some respect uses spin to become who they are (you gotta fake it til you make it). Half a decade ago Tesla was making outlandish claims about their ambitions and they’ve not stuck to many of their commitments but no one accuses Elon Musk of fraud. He’s hopeful, not fraudulent.
      - acdha 9y ago
        In general it’s failing to disclose that gets you into trouble. Everyone knows that Elon Musk is not an unbiased source of information anout Tesla or their competitors because he doesn’t make any attempt to hide his investment.
    - jakear 9y ago
      How does this translate over to things like fashion/social trends in general? Something like "Corsets are coming back for spring 2018! Get on top of the trend at XYZ Fash Inc.!" hardly seems like fraud, but by that definition it would be.
      - pcwalton 9y ago
        This is where a lawyer would have to answer. I'm certain that a detailed explanation would involve a mountain of cases and precedents. (I would guess that a lot of the precedent hinges on whether you are intentionally lying, or whether you are merely making a good-faith prediction. Pump-and-dump schemes are obviously the former.) The point is that, in general, deception for financial gain is fraud, more or less by definition. It doesn't have to involve regulated securities.
  - tptacek 9y ago
    Your question is whether running a pump-and-dump scam on an unregistered, unlawful security is legally safer than doing so with a registered, legal security?
erdo 9y ago
Thing about these telegram pump and dump groups is they are usually NOT lying to anyone. It's all very transparent (if you're inside the group) pump the price when we tell you to, and do what you want once the price has gone up (and it does go up).
AlexCoventry 9y ago
Existing regulations are probably as adequate as they are for more traditional instruments. There needs to be better monitoring and enforcement, though.

Would this go away with more regulation? Is it fraud?

by lixtra 9y ago

Would this go away with more regulation? Is it fraud?

Pump and dump is absolutely fraud (as it requires deception to work--note the "promote on social media" step), and you can go to prison for it. Jordan Belfort, the "Wolf of Wall Street" mentioned in the title, did.

lixtra 9y ago
So how is it different from Bitcoin? Except for time scale? Is it the dump part?
- pcwalton 9y ago
  Promoting investment in Bitcoin can (in theory) be legitimate if you sincerely believe that Bitcoin has real value. By contrast, pump and dump schemes involve lying about a security you know to be worthless (or at least worth far less than what you're saying). The fact that you dump it immediately makes it easy to prove this.
spunker540 9y ago
I think if these were regulated securities being traded on regulated exchanges it certainly would be fraud and a jailable offense. But is it fraud for something like collectible beanie babies? (as far as I can tell that is basically how cryptocurrencies are regulated right now in the US).
- pcwalton 9y ago
  If you make money by getting groups together to sell Beanie Babies falsely claiming that you have insider info that the fad is going to make a comeback, that is fraud, and you can go to prison for it.
  - spunker540 9y ago
    So I couldn’t legally advertise alongside marked up collectibles that “the fad is coming back!” Or I just couldn’t legally collaborate with others to do so? I feel like it’s not necessarily a false claim, just a hopeful one. As a corollary every company in some respect uses spin to become who they are (you gotta fake it til you make it). Half a decade ago Tesla was making outlandish claims about their ambitions and they’ve not stuck to many of their commitments but no one accuses Elon Musk of fraud. He’s hopeful, not fraudulent.
    - acdha 9y ago
      In general it’s failing to disclose that gets you into trouble. Everyone knows that Elon Musk is not an unbiased source of information anout Tesla or their competitors because he doesn’t make any attempt to hide his investment.
  - jakear 9y ago
    How does this translate over to things like fashion/social trends in general? Something like "Corsets are coming back for spring 2018! Get on top of the trend at XYZ Fash Inc.!" hardly seems like fraud, but by that definition it would be.
    - pcwalton 9y ago
      This is where a lawyer would have to answer. I'm certain that a detailed explanation would involve a mountain of cases and precedents. (I would guess that a lot of the precedent hinges on whether you are intentionally lying, or whether you are merely making a good-faith prediction. Pump-and-dump schemes are obviously the former.) The point is that, in general, deception for financial gain is fraud, more or less by definition. It doesn't have to involve regulated securities.
- tptacek 9y ago
  Your question is whether running a pump-and-dump scam on an unregistered, unlawful security is legally safer than doing so with a registered, legal security?

erdo 9y ago

Thing about these telegram pump and dump groups is they are usually NOT lying to anyone. It's all very transparent (if you're inside the group) pump the price when we tell you to, and do what you want once the price has gone up (and it does go up).

AlexCoventry 9y ago

Existing regulations are probably as adequate as they are for more traditional instruments. There needs to be better monitoring and enforcement, though.