Securities Fraud Practices to Keep Away From in ICOs

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 can 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 trading exist. 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 in 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.

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