What to do if you’ve been Scammed
If you’ve fallen victim to a cryptocurrency scam it’s critical to take immediate action. At Crypto Consulting NZ, we specialize in scam support services tailored to your specific needs. We’ll help you confirm if you’ve been scammed, guide you through documenting your case, and provide expert advice on what to do.
Whether it’s a Pump and Dump or Rug Pulls our team can assist with every step of the process to ensure you’re informed and protected moving forward.
What Is Pump-and-Dump?
A cryptocurrency pump-and-dump is a market manipulation scheme where scammers acquire or create large quantities of an token and then artificially inflate its price through deceptive promotions (pump). Once the price is high, they sell off their holdings (dump) to unsuspecting investors.
When the scammers sell their tokens, the market supply increases while the price drops. Since many of these assets lack intrinsic value, their prices typically do not recover after the dump. As a result, innocent investors are left with almost worthless tokens while the fraudsters walk away with their gains.
Pump and Dumps: Explained
Pump-and-dump schemes aren’t limited to cryptocurrency; they have a long history in traditional finance. Their origins trace back to the South Sea Bubble of the early 18th century, where even King George I of Great Britain invested in the South Sea Company. When the bubble burst in 1720, notable figures like Isaac Newton and many investors faced significant losses.
These schemes have evolved over time. For instance, Jordan Belfort, the protagonist of Wolf of Wall Street, was imprisoned for orchestrating pump-and-dump operations involving penny stocks through his brokerage.
In today’s digital age, crypto scammers exploit the internet and anonymity to perpetrate similar frauds. According to Chainalysis data, 24% of new tokens launched in 2022 showed signs of being part of a pump and dump scheme.
How Do Crypto Pump and Dumps Work?
Pre-Launch Phase
A pump and dump scam revolves around generating hype around a relatively worthless token. The key strategy is to create excitement and urgency—known as FOMO (fear of missing out)—to drive investor interest and inflate the token’s value. Scammers use platforms like X (formerly Twitter), Discord, and Telegram to spread the hype and target uninformed investors.
In this phase, scammers often use tactics such as allowlists or whitelists to build a base of early buyers. An allowlist provides selected participants with early access to the token, sometimes offering additional perks or discounts. This strategy creates a false sense of exclusivity and urgency, making investors feel like they’re getting a unique opportunity to invest before the general public.
Launch
As the launch approaches, scammers employ shillers—individuals with large social media followings or credibility—to promote the token and amplify its perceived value. Shillers use FOMO to push the narrative that this is a last-chance opportunity to invest early and potentially reap substantial rewards. This artificial buzz encourages more investors to buy in, often at inflated prices.
Pump
During the pump phase, the token’s price skyrockets as the initial round of investors drives up demand. Latecomers, believing they have missed out, rush to invest at higher prices, further inflating the token’s value. This is precisely what the scammers intend, as they benefit from the rising prices.
Dump
How to Spot a Pump and Dump: Top Red Flags
Token Allocation
When evaluating a cryptocurrency project, it’s crucial to understand how and where the tokens are allocated. Key factors to consider include:
- Allocation Plan: Check the detailed allocation plan of the token. Understand the distribution strategy and how the total supply is planned to be issued.
- Centralization Risks: Be wary if a significant portion of tokens is allocated to a single centralized entity. This could allow a single party to sell off their holdings en masse, leading to a sharp price drop.
- Founder and Contributor Holdings: Find out if the founders or early contributors hold a substantial share of the total tokens. This can impact the token’s stability and market value.
- Vesting Periods and Escrows: Look into the vesting periods and escrow arrangements for project insiders to ensure that there are mechanisms in place to prevent immediate sell-offs.
Use block explorers like Etherscan to verify token allocations on-chain and confirm the details.
Founders' Reputation
The reputation of a project’s founders is a strong indicator of the token’s legitimacy and reliability. Investigate the following:
- Transparency: Are the founders open about their identities
- Past Controversies: Have the founders been involved in scams
- Track Record: Do the founders have a history of successfully launches
- Consistency: Are the founders’ social media profiles consistent and credible?
Investigating these aspects can help you identify potential red flags. If a founder has a history of dubious activities, it’s wise to approach their current projects with caution.
Social Media Behavior
Monitoring a project’s social media can reveal signs of a pump and dump:
- Comment Restrictions: Scammers often disable comments on social media posts to avoid negative feedback or questions.
- Fake Engagement: Discrepancies between follower counts and post engagement, such as inflated likes or views, can indicate fake engagement.
- Discord Activity: A project’s Discord server can also provide clues. Watch for excessive bots, lack of genuine discussions, or a flood of complaints, which may signal suspicious activity or a scam.
Are Pump and Dumps Legal?
Pump and dump schemes are illegal in many regions, including the US and EU, where securities laws explicitly ban such practices. However, cryptocurrency scams often exploit anonymity to avoid detection, and the crypto market remains largely unregulated in many areas, including New Zealand.
As an investor, it’s crucial to rely on data and logic rather than emotions and fear of missing out (FOMO) when making investment decisions. Allowing your emotions to guide your choices can lead you into traps like pump-and-dump scams. Stay informed and cautious to protect your investments.
What to Do If You’ve Been Scammed
If you’ve fallen victim to a Pump and Dump Scheme, it’s crucial to act quickly. While the decentralized nature of cryptocurrency makes recovering funds difficult, there are steps you can take to mitigate the damage.
Crypto Consulting NZ offers scam support services to guide you through the recovery process. Here’s what you should do:
- Document Everything: Save all correspondence, screenshots of transactions, and any relevant details about the scam. This information will be critical.
- Alert Your Bank: If you’ve shared bank details, contact your bank immediately to flag any suspicious activity or halt future transactions.
- Use Crypto Consulting NZ’s Scam Support Services: Crypto Consulting NZ specializes in helping victims of crypto scams by offering expert advice, guidance on documenting your case, and support through the process
- Secure Your Devices and Accounts: If your personal data or login credentials have been compromised, reset all passwords, enable two-factor authentication (2FA), and scan your devices for malware.
