There are securities fraud practices in the traditional securities companies, like Pumping and Dumping (PnD) and insider trading, among others.  Distributed Ledger Technology (DLT) companies must keep away from them, before, during, and after Initial Coin Offerings (ICOs). This preserves the DLT companies’ reputation, complies with the applicable regulations, and protects investment interest of market participants.

Securities Fraud in ICO

In the Distributed Ledger Technology (DLT) industry, Initial Coin
Offerings (ICOs) continue to prove to be both a more viable and sustainable new
way of business capital formation. They herald the ease of investment in a
company, without the need for filing paperwork, or waiting on weekends till
offices are open during the weekdays for the government bureaucrats to open and
commence operations. No more delays. No more long waiting hours for days 
and months on end. Corporations are starting to invest into the DLT industry
because from all indications, this industry has recorded quite a number of
firsts. These corporations need to incorporate DLT into their businesses.
Otherwise,  the blizzard may consume their businesses, or the old business
model may become naturally forced into an early extinction.

ICO market operators and participants should beware certain ICO market
activities. These market activities amount to fraud, criminality and unfair
practices. This has become imperative for investor protection purposes, business
reputation preservation, and most essentially, the portrayal of the whole ICO
market space in good light.

Though the list is fairly long for types of securities fraud 
to avoid, two of the most commonly found ones in the ICO industry will be
checklisted and analysed accordingly. It is important that to keep on the right
side of the law, regulations, and ensure fair market compliance, Initial Coin
Offerings (ICOs) must, of necessity, take cognisance of these fundamental
securities fraud practices. This ethical consciousness will help in shaping the
ICOs, and protect them from falling prey to the nefarious actors in the space,
whose stock-in-trade is making quick fortunes, at the expense of the
unsuspecting, innocent and unsophisticated market participants–not considered
professional, or institutional investors. In the ICO market, the former
constitutes an army of investors.


In the legacy stock market
dynamics, pumping
and dumping
be found in the native vocabulary. Though more pronounced with the advent of
Internet technology, it is not a new phenomenon brought on by Initial Coin
Offerings (ICOs) or the entire cryptocurrency revolution. Though the ICO market
critics would have people believe this is the case, it is a piece of
misinformation. Pumping and dumping has been around long before Distributed
Ledger Technology (DLT) as the base technology for cryptocurrencies, or
ICOs  was ever invented.

Pumping and dumping originated as a form of unscrupulous stock market
manipulation where stockbrokers, stockholders and stock analysts recommend
stocks, based on hype, exaggeration, false and misleading information to drive
up stock prices. After a successful creation of buzz, securities market is
saturated, and stocks have acquired the desired market price action, nefarious
actors cash out. As a result, panic selling happens, and stock prices are
driven down under.

This practice by the unscrupulous elements selling for quick profits is
considered a form of securities fraud, and therefore illegal, according to the
securities laws and regulations in various jurisdictions. This securities fraud
practice does attract heavy fines, or more drastic consequences, based on both
relevant and prevalent facts and circumstances requisite to each case.

Certain cryptocurrency
traders, analysts, and exchanges in the ICO market, have been alleged to be
involved in the above practice overtime. For instance, the bitcoin price, and
some altcoin prices fell to an all-time low of late because allegedly, Tether
(USDT) was being used to manipulate
the bitcoin market price
. That in turn, affects other major
altcoin market prices. All these altcoins however, were affected by the bitcoin
market price manipulation because of the fact that bitcoin in the Internet
value transfer ecosystem, is to altcoins, what the United States’ dollar is, to
other fiats in the legacy global finance. Initial Coin Offering (ICO) market
operators and market participants must avoid the pumping and dumping strategy,
as this act is an unfair and fraudulent practice, which infringes upon securities
laws and regulations of major ICO jurisdictions.


Insider trading, is a form of trading with privileged inside information
used to garner unfair profit from stock transactions. This too, is neither new,
nor an exclusive phenomenon. Nor a securities fraud practice heralded by the
blockchain-based Initial Coin Offerings (ICOs) industry. It is a factor rather
more prevalent in the traditional stock market and securities exchange space.

Two types of insider
While one is considered a securities fraud practice, the other is not
considered as such. One is trading in the stocks of a company by insiders who
include directors, officials, key employees, or holders of more than ten
percent in the entire company’s shareholding interest. This is a non-criminal
securities activity, subject to prior compliance with relevant securities law
framework prerequisites. Securities law varies from jurisdiction to
jurisdiction. The other insider trading type is that where a stock sale or
purchase is made, based on manipulation and exploitation of information not
made readily available to members of the public.

A scenario happened recently,
where the second type of insider trading as a form of securities fraud practice
somewhat applies. The head of an influential Initial Public Offering (IPO)
company had called bitcoin
a fraud
. This statement occasioned negative consequences. It
reflected badly on the market capitalisation of bitcoin. The cryptocurrency suffered
24% downward spiral
its market price as a result.

It was later revealed that the
company though, had been involved with bitcoin, also bought twelve thousand Exchange-Traded
Notes  of bitcoin
 consequent upon the statement.
This is a clear market manipulation. Elsewhere in a country like Sweden, such
action would have attracted a
two-year jail term
 , according to the relevant laws.
The action amounts to an unequivocal market regulation law abuse. Closely
scrutinised, the situation somewhat looks like a form of illegal insider
trading. This is so, because the IPO company leveraged on the statement, and
thus gained an unfair advantage. The information about the IPO company dealing
in bitcoin was not disclosed to members of the public, until investigation
revealed otherwise. Investors’ confidence in the cryptocurrency was badly
affected as a result of the public statement in question.