Fortunately, there are a number of things you can do to avoid commodity fraud. Read on to learn about the most common forms of scams, the CFTC’s role in preventing them, and how to protect yourself.
Pump and dump schemes
Whether you’re looking to buy or sell a digital coin, you should know how to avoid pump and dump schemes to avoid commodity fraud. These are financial scams that lure investors with high hopes and low expectations. They usually involve a new asset like a cryptocurrency that looks too good to be true.
In a pump and dump scheme, a group of insiders buys a low float stock in hopes of getting a higher price in a short period of time. The insiders then sell their shares to generate a profit. This type of scam is most common with small-cap stocks.
The pumping phase of a pump and dump scheme typically involves hype, news stories and fake celebrity endorsements. The group leaders may claim that a particular pump will take place on a specific exchange. They may also promote the stock as the next big thing.
Traders in high-volume commodity futures markets are warned to watch out for fraud by spoofing. This practice is meant to create a false narrative of supply and demand in the market. It is a common form of marketplace fraud. It is particularly effective in high-frequency trading.
Spoofing is a form of market manipulation and is illegal under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In particular, spoofing on exchanges is illegal under Section 6(c) of the Act. This section allows the CFTC to prosecute traders who attempt to manipulate the market price.
Dodd-Frank greatly expanded the Department of Justice’s ability to bring cases against traders. Previously, the CFTC relied on provisions of the Commodity Exchange Act (CEA) to bring cases against traders. Now, the CFTC can also file administrative enforcement actions against traders who attempt to manipulate the market price.
Keeping track of a wash trade can be challenging. In this type of trading, the same asset is bought and sold within a short period of time. Usually, a trade is considered to be a wash if it doesn’t change the overall position.
Wash trading has been outlawed by most jurisdictions, but there are still some cases of individuals engaging in the practice. This form of manipulation can occur on any number of venues. Typically, traders will use different accounts to make trades and change prices. This is a strategy that can make a profit, but can also be a red flag.
The most basic way to avoid wash trading is to avoid small-cap cryptocurrencies. If you are trading, you can look up historical trades to find out if any of them are likely to be wash trades.
During the past few years, the government has focused on insider trading and commodity fraud. This type of crime is characterized by a person or group of people buying or selling a security in a way that is not publicly known.
In the US, the Securities and Exchange Commission and the Department of Justice have long had a history of applying anti-fraud laws to insider trading. Insider trading and commodity fraud is a major crime that may result in significant penalties and loss of assets.
Insider trading and commodity fraud may be caused by tipping information, trading by an advisor or nominee, or trading by a person who has knowledge of a material nonpublic information. These violations can result in substantial fines and even jail time.
Before the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Commodity Futures Trading Commission (CFTC) had a limited jurisdiction over insider trading. However, the Act added to the Commission’s authority by creating new anti-fraud authority.
CFTC’s role in preventing fraud
CFTC’s role in preventing commodity fraud has expanded in recent years. Not only have the CFTC’s fraud rules become more sophisticated, but CFTC enforcement efforts have continued to follow a parallel track with the Securities and Exchange Commission.
The CFTC has expanded its regulatory authority to include swaps markets under the Dodd-Frank Wall Street Reform and Consumer Protection Act. While this new authority is specifically aimed at preventing market manipulation and price manipulation, it also expands CFTC’s ability to use fraud rules to enforce commodities cash markets and benchmarks.
CFTC’s role in preventing fraud in the swaps market has expanded in the past year. In October, the CFTC released a primer on virtual currencies, and in September the Commission unsealed charges against a virtual currency exchange website.