One of the things that make cryptocurrencies such a highly volatile asset is because of the fact that there are those who can perform pump-and-dump schemes. By performing a pump-and-dump scheme, it becomes possible to manipulate prices of coins. Pump-and-dump schemes have become rampant due to the lack of regulatory clarity in the niche.
And today, John McAfee is at the center of a lawsuit that claims he made use of this strategy in order to manipulate company’s shares. John McAfee has been known as a supporter of Bitcoin. In fact, he even believes that Bitcoin is going to reach $1 million by 2020.
However, MGT Capital Investments, which is a bitcoin mining and crypto investing company that was formerly associated with McAfee has been sued. The class-action suit involved its former CEO with allegations that McAfee and MGT Capital Investments were involved in a pump-and-dump scheme that manipulated the price of MGT shares.
Class Action Lawsuit
Rosen Law firm filed the lawsuit on behalf of former and current MGT shareholders who were able to buy MGT securities between October 2015 to September 2018. This lawsuit was filed following a US Securities and Exchange Commission investigation that involved MGT Capital CEO Robert Ladd who was allegedly involved in a stock-pumping scheme.
How exactly did it happen? The pump-and-dump operation allegedly consisted of 10 investors and corporate executives. It includes Ladd, John O’Rouorke who is the former Riot Blockchain CEO, and Philp Frost. Based on this allegation, those who were involved were able to generate around $27 million in unlawful stock sales simply by manipulating the prices of penny stocks.
John McAfee has been named as a defendant in the class lawsuit. McAfee served as executive chairman and CEO until he quit in August 2017. According to the lawsuit, the lawsuit requests the court to order MGT to pay for the damages to shareholders that were affected by the manipulation. Included in the amount is the cost of the lawsuit, and award the further relief to the complainants.
According to an MGT Spokesperson when asked to give a comment regarding the lawsuit, the spokesperson of the company simply mentioned that the lawsuit has no merit. According to the spokesperson, “MGT has the utmost confidence that the suit filed against them is without merit”. He also added that “This is not a departure from normal affairs in securities markets when share prices are down. Previous cases along a similar vein were thrown out without prejudice”.
Price Manipulation Common in Crypto Niche?
Price manipulation is quite common in the niche. In fact, Tether has been accused to be involved in Bitcoin price manipulation. Also, there are allegations that some crypto exchanges are using bots for “spoofing”. Spoofing is being used in order to manipulate the supply and demand for a particular asset.
The US Securities and Exchange Commission had the hesitation to approve Bitcoin ETFs mainly because of fear of possible price manipulation. The Winklevoss twins submitted their Bitcoin ETF application for the second time around only to be rejected by the agency again.
Is the market really prone to market manipulation? Considering the possibility that there could be an approved Bitcoin ETF soon from CBOE, this is an important question that has to be answered. Does the agency need more regulatory action in order to prevent these cases from happening?