Pump and Dumps in the Bitcoin Era: Real Time Detection of Cryptocurrency Market Manipulations

In the last years, cryptocurrencies are increasingly popular. Even people who are not experts have started to invest in these securities and nowadays cryptocurrency exchanges process transactions for over 100 billion US dollars per month. However, many cryptocurrencies have low liquidity and therefore they are highly prone to market manipulation schemes. In this paper, we perform an in-depth analysis of pump and dump schemes organized by communities over the Internet. We observe how these communities are organized and how they carry out the fraud. Then, we report on two case studies related to pump and dump groups. Lastly, we introduce an approach to detect the fraud in real time that outperforms the current state of the art, so to help investors stay out of the market when a pump and dump scheme is in action.Comment: Accepted for publication at The 29th International Conference on Computer Communications and Networks (ICCCN 2020

The Legal Status of “Dump & Sue”: Should Plaintiffs and their Attorneys be Prohibited from Trading the Stock of Companies they Sue? – a Law and Economics Approach

There is some evidence that plaintiffs and their attorneys are profitably short-selling the stock of the companies they intend to sue. The status of such short sales is undecided in the law. Lawsuits against companies can cause large drops in market value, and hence such an action by the plaintiff should cause concern. Plaintiffs, however, are not traditional insiders, and they do not owe the shareholders any fiduciary duties. They can therefore consent to their attorneys also short-selling the stock of the defendant corporation. The attorneys need to receive such permission to avoid misappropriating the information concerning their client’s decision to sue. A plaintiff’s decision to sue after short-selling does not constitute market manipulation in the traditional sense, since the decision to sue is a true fact that causes the drop in the share price as opposed to those who commit fraud by spreading false negative stories about the company. Plaintiffs need, therefore, to be legally deemed temporary insiders until they publicly reveal their intention to sue or actually sue. The reasons for deeming them insiders, and hence prohibiting them from short-selling, are threefold. First, allowing such activities would raise the same concerns regarding market integrity raised by those opposed to insider trading. Second, allowing such short-selling is a form of fraud by silence against those who purchase the shares. Third, allowing short-selling would give the plaintiffs double recovery for their lawsuit, as they could gain a large share of their claim against the company from the profitable short sales in addition to any verdict or settlement. Furthermore, proposals to extend Regulation FD to plaintiff’s attorneys would be ineffective in combating the harm from such short-selling. The law, therefore, through either developments by the courts, regulatory promulgations by the SEC, an act of Congress, or a combination of any of the preceding three mechanisms should be used to treat plaintiffs as insiders until they sue or announce their intention to sue

Criminology towards the metaverse: Cryptocurrency scams, grey economy and the technosocial

Online markets in cryptocurrency represent a sprawling and eclectic alternative financial system, selling cutting edge techno-investment schemes that are complex and high risk. Crime control is almost entirely absent from this new crypto economy, and it is full of scams. This paper draws on an ethnography of crypto trading to review the main types of scam, suggesting that the grey economy of cryptocurrency trading is part of a wider evolution of society towards the technosocial, and beyond that perhaps towards the metaversal

What Is a Security in the Crowdfunding Era?

With the advent of the crowdfunding era, financial interests in business enterprises may look less like investment instruments commonly known as common stock or debentures, and more like loans, gambling bets, rights to consumable products or services or charitable or other nonprofit donations. A closer look at innovations in interests, instruments and offerings in the crowdfunding era preceding the enactment of the Jumpstart Our Business Startups Act (JOBS Act) offers a basis for comparisons and contrasts that raises questions about the categorization of instruments regulated as securities. These and other questions are important to a rethinking of the structure of financial and financially related regulation in and outside the realm of U.S. securities law. Specifically, innovations in financial interests and instruments that immediately preceded the JOBS Act raise a number of important questions about regulatory authority and interpretation. How do we classify the instruments that represent complex or hybrid financial interests in business enterprises? What area of regulation should apply to them? Why? What do the answers to those questions tell us, if anything, about the current (and possible future) structure and function of domestic and international financial regulation? This essay preliminarily explores the features of certain financial instruments in an effort to begin to answer these questions by focusing on what a security — a statutory and regulatory category including specific financial instruments — is and should be under federal securities law

Cryptocurrencies and future financial crime.

Background: Cryptocurrency fraud has become a growing global concern, with various governments reporting an increase in the frequency of and losses from cryptocurrency scams. Despite increasing fraudulent activity involving cryptocurrencies, research on the potential of cryptocurrencies for fraud has not been examined in a systematic study. This review examines the current state of knowledge about what kinds of cryptocurrency fraud currently exist, or are expected to exist in the future, and provides comprehensive definitions of the frauds identified. Methods: The study involved a scoping review of academic research and grey literature on cryptocurrency fraud and a 1.5-day expert consensus exercise. The review followed the PRISMA-ScR protocol, with eligibility criteria based on language, publication type, relevance to cryptocurrency fraud, and evidence provided. Researchers screened 391 academic records, 106 of which went on to the eligibility phase, and 63 of which were ultimately analysed. We screened 394 grey literature sources, 128 of which passed on to the eligibility phase, and 53 of which were included in our review. The expert consensus exercise was attended by high-profile participants from the private sector, government, and academia. It involved problem planning and analysis activities and discussion about the future of cryptocurrency crime. Results: The academic literature identified 29 different types of cryptocurrency fraud; the grey literature discussed 32 types, 14 of which were not identified in the academic literature (i.e., 47 unique types in total). Ponzi schemes and (synonymous) high yield investment programmes were most discussed across all literature. Participants in the expert consensus exercise ranked pump-and-dump schemes and ransomware as the most profitable and feasible threats, though pump-and-dumps were, notably, perceived as the least harmful type of fraud. Conclusions: The findings of this scoping review suggest cryptocurrency fraud research is rapidly developing in volume and breadth, though we remain at an early stage of thinking about future problems and scenarios involving cryptocurrencies. The findings of this work emphasise the need for better collaboration across sectors and consensus on definitions surrounding cryptocurrency fraud to address the problems identified

AI-powered Fraud Detection in Decentralized Finance: A Project Life Cycle Perspective

In recent years, blockchain technology has introduced decentralized finance (DeFi) as an alternative to traditional financial systems. DeFi aims to create a transparent and efficient financial ecosystem using smart contracts and emerging decentralized applications. However, the growing popularity of DeFi has made it a target for fraudulent activities, resulting in losses of billions of dollars due to various types of frauds. To address these issues, researchers have explored the potential of artificial intelligence (AI) approaches to detect such fraudulent activities. Yet, there is a lack of a systematic survey to organize and summarize those existing works and to identify the future research opportunities. In this survey, we provide a systematic taxonomy of various frauds in the DeFi ecosystem, categorized by the different stages of a DeFi project's life cycle: project development, introduction, growth, maturity, and decline. This taxonomy is based on our finding: many frauds have strong correlations in the stage of the DeFi project. According to the taxonomy, we review existing AI-powered detection methods, including statistical modeling, natural language processing and other machine learning techniques, etc. We find that fraud detection in different stages employs distinct types of methods and observe the commendable performance of tree-based and graph-related models in tackling fraud detection tasks. By analyzing the challenges and trends, we present the findings to provide proactive suggestion and guide future research in DeFi fraud detection. We believe that this survey is able to support researchers, practitioners, and regulators in establishing a secure and trustworthy DeFi ecosystem.Comment: 38 pages, update reference

When Insider Trading and Market Manipulation Cross Jurisdictions. What Are the Challenges For Securities Regulators and How Can They Best Preserve the Integrity of Markets?

Over the last few decades world securities markets have become significantly more sophisticated in terms of how securities are traded as well as the variety of securities traded. My hypothesis is that the ability of securities regulators to take enforcement action against market abuse has not kept pace with the level of sophistication of the markets and, in particular, the way in which trading can take place across borders and the manner in which market related information can spread rapidly across the world. I argue that that regulators need to do more to protect the integrity of the markets by improving their efforts to initiate action against market abuse. Furthermore, given the global nature of the problem I argue that the International Organization of Securities Commissions (IOSCO) should be more proactive in coordinating the activities of securities regulators in this regard. I commence with an analysis of why the integrity of securities markets is critical to the economy of a country and why it is necessary for regulators to enforce laws prohibiting market abuse in order to protect market integrity. I then move on to identify the changes to securities markets, the regulatory responses to these changes, trends in the types of market abuse which is taking place across borders and how those responsible for taking enforcement action against such market abuse have responded. Finally I consider IOSCO, its history, how its role has evolved, its impact to date and how IOSCO could build upon its success in terms of improving the enforcement outcomes of securities regulators in relation to market abuse. I conclude that the transformation of the markets have presented opportunities to engage in market abuse across borders and that, while some positive steps have been taken to address this issue, more could be achieved. Finally I discuss and make recommendations about what might be done to improve the ability of securities regulators to take successful enforcement action

A New Market-Based Approach to Securities Law

Modern securities regulation has three main areas, each of which is plagued by a core problem. Mandatory disclosure law leaves society with suboptimal disclosure, as the government calls for too little of some information (for example, management analysis of company prospects) and too much of other information (for example, data about trivial executive perks). Securities fraud law (specifically, its central fraud-on-the-market theory of reliance) yields damages at odds with any reasonable theory of compensation and deterrence. And insider trading law fails to achieve its ends because incentives to police illegal trading and tipping by executives are currently weak. In this Article, we propose fixing these fundamental flaws of securities law by shifting much of the regulatory focus from firms to information. In particular, we introduce the idea of building the law around a well-regulated market for the public-company information that sits at the center of each of the three main areas of securities law. Deploying this market, we argue, would trigger incentives for firms to disclose more information of value while also motivating them to more rigorously police illegal trading and tipping by their agents. Additionally, it would help regulators identify when the law requires disclosure that is not socially valuable and assist in the identification of a class of securities fraud plaintiffs that is more in line with the goals of the anti-fraud regime