The Cautionary Tale of the Litecoin ‘Pump and Dump’
In a twist on the classic ‘pump and dump’ scam, the price of crypto currency ‘Litecoin’ rocketed from around US$170 to above US$230 for a brief period on Monday morning after a fake press release claimed Walmart was allowing online shoppers to pay for purchases using the cryptocurrency. In an audacious move on the part of the scammer(s), the fake news that sparked the price spike was distributed on the GlobeNewswire distribution platform. GlobeNewswire subsequently removed the press release from its website and posted a message saying that “journalists and other readers should disregard” and later that it “became aware this morning that a fraudulent user account was used to issue an illegitimate press release”.
For the uninitiated, a ‘pump and dump’ is where a person creates false hype about a stock in order to generate interest. Once investors start buying shares, the price of the stock goes up. When the price reaches a certain point, the scammers behind the fake hype sell all of their shares at a higher price. The more classic ‘pump and dump’ schemes normally involve fake news about one company being bought by, merging or partnering with a another company in some way, sending the price up – often using artificially amplified fake news posts on social media. These are usually quashed pretty quickly as both parties deny the story but the damage is often already done. In fact in this case employees from Litecoin actually retweeted the news themselves without checking its veracity first and unwittingly added to the hype. Credit to Walmart’s communications machine for debunking the fake news as quickly as they did, otherwise the situation could have got a lot worse for many investors.
The unregulated world of crypto currencies has been a boon for scammers and fraudsters for some time now. The ‘easy money’, casino mentality of a lot of cryptocurrency investment means people take bigger risks without doing their due diligence first and many investors (both casual and professional) stuck at home for long periods over the pandemic, seemed to have lost their sixth sense that something may be amiss – all of which makes it the perfect environment for fraudsters.
What is interesting about this case is that it involved gaming a ‘trusted’ or official channel rather than simply manipulating or amplifying fake news on social networks as is more usually the case. According to ZenPulsar, a cyber forensic company that detects and analyses disinformation and artificial promotion of news and posts on social media networks, there was a smaller share of coordinated, artificial or inauthentic promotion of this particular news compared to other cases – probably because there didn’t need to be.
Whilst from a reputational perspective it is likely that both GlobeNewswire and the founders of Litecoin will probably have taken a moderate hit for being so brazenly gamed, it serves as cautionary tale for the rest of the corporate world. Threats to reputation can come from even the most innocuous places and particularly when it comes to special situations or corporate events, the reputational consequences of market or social manipulation can be very serious (see Danone in Morocco). Major blue-chips like Walmart will have invested heavily in the machinery and expertise to detect, monitor and counter fake news quickly and effectively, but most companies will not have. In an environment where even reasonably trusted sources can be gamed and where, according to some measures, reputation accounts for over 60% of a company's market value, the external monitoring of the digital world needs to be highly sophisticated, deep, and in real time. Internally companies also need to ensure that their employees are not unwittingly adding to the problem by retweeting fake company news.