Old Frauds with a New Sauce: Digital Coins and Behavioral Paradigms

Abstract

In this paper, we explore the conversion of market frauds from stocks to virtual assets. We investigate the transition from traditional to digital for six schemes: ransomware, price manipulations, “pumps and dumps”, misrepresentation, “spoofing” and Ponzi schemes to find that the advent of cryptocurrencies may facilitate pseudonymous criminal behavior in the present regulatory environment. Furthermore, apply the Regulatory Dialectic Theory and use the behavioral finance literature to explain the persistence of the relationship between scammers and their victims, as fraudsters innovate in the digital realm, but but investors fail to adapt.