The announcement came out at 9:30 a.m. on Monday, when the US stock market opened. It claimed to be from Walmart and proclaimed big news for the cryptocurrency industry: the country’s largest store would soon accept Litecoin payments.
The news seems genuine enough that it picks up by various news sources. Even the Litecoin Foundation’s Twitter account, which advocates the currency’s usage, posted on the launch. Litecoin’s value increased by over 30% until Walmart issued a formal statement denying the rumor.
The newest in finance had apparently fallen victim to one of the oldest investment frauds (a classic pump-and-dump scheme). Someone created a phony news release to promote Litecoin, which is less popular than Bitcoin and other cryptocurrencies.
Litecoin’s value surged from roughly $175 to around $230 soon after the revelation but fell to around $180 as Walmart refuted the accusations. During that time, the hoax scammers made money.
Securities attorneys projected an SEC probe and possible prosecution against the culprits, whose identities remained unknown.
“It’s a deceit involving a public issuer,” said Andrew Calamari, a former SEC securities and New York office director. “The Securities and Exchange Commission has absolute power.”
Scams expect to increase
The swindle expects to increase calls for more regulation of the cryptocurrency industry, which trades billions of dollars on unregulated exchanges and is infamous for pump-and-dump schemes. Gary Gensler, the SEC’s chairman, pushed Congress to give financial regulators more authority over cryptocurrency products and exchanges. The SEC declined to comment.
The fake notice came from GlobeNewswire, a company that provides corporate communication services. GlobeNewswire competes with PR Newswire and Business Wire, whose parent company, Intrado, is owned by Apollo Global Management. GlobeNewswire said it removed the “invalid news release” posted by a “fake user profile” immediately.
“This never happened subsequently,” it added, adding that “additional authentication measures” had been put in place to prevent it. GlobeNewswire said it will assist all investigators.
Randy Hargrove, a Walmart representative, said the retailer first learned about the publishing after journalists contacted him to verify claims made by various news sites. Eventually, the retailer issued a statement denying any relationship with Litecoin. “We’re looking into that,” Mr. Hargrove said.
However, there were hints that the announcement was a hoax, including a false statement from Walmart CEO Doug McMillon. For example, it listed an illegitimate email address at Walmart-corp.com. Also, the designated press contact does not work in Walmart’s media division. Mr. Hargrove said Walmart generally uses Business Wire for official announcements.
Litecoin’s present popularity makes it a strange cryptocurrency for a business, say, cryptocurrency experts. While the fake news release slipped through Globe Newswire’s filters, the business advised consumers to disregard it before midday, and both Bloomberg and Reuters retracted and corrected their stories.
These scams do occur from time to time. Another news wire agency produced a bogus press release in 2010 claiming that General Mills was under scrutiny by the federal government, even though it wasn’t. Federal securities regulators prosecuted a stockbroker in 2009 for sending bogus press releases in order to affect the stock prices of multiple publicly traded firms. The SEC filed an enforcement action in that instance just three weeks after the fraud began.
Most major corporate news wires have security mechanisms in place to allow corporations to send press releases for publication. Following a fake release incident involving a pharmaceutical business in 2010, Business Wire, which controls by Warren E. Buffett’s Berkshire Hathaway, forbade corporations from submitting press releases via email.
The Litecoin Foundation was likewise confused by the bogus Walmart announcement, which it briefly tweeted. The charity later deleted the post and claimed that it had not partnered with Walmart. An employee of the foundation’s social media staff published the Twitter tweet, which allegedly contained a quote from Litecoin’s creator, Charlie Lee. “We have taken steps to avoid future problems,” the statement said.