Consumer Protection, Fraud, and Market Conduct
This domain tests how firms must treat retail customers and how fraud schemes operate in virtual currency. It blends unfair, deceptive, or abusive acts and practices (UDAAP) analysis with fraud typologies and trading-conduct standards.
Consumer protection standards
- UDAAP under the Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices in consumer financial products. Section 5 of the FTC Act and state UDAP statutes add parallel exposure.
- Disclosures must be clear and not buried: fees, spread, custody arrangements, insolvency risk, and withdrawal limits.
- Complaint handling, error resolution, and advertising claims are exam favorites because they generate concrete fact patterns.
Fraud typologies
- Pig butchering combines a romance or relationship pretext with a fake investment platform; FinCEN issued an alert on this scheme in 2023.
- Giveaway scams impersonate executives or exchanges and demand a seed phrase or upfront payment.
- Rug pulls and exit scams drain liquidity after promotion; ransomware demands payment in CVC.
- Account takeover and sim-swap attacks target weak authentication, not the blockchain itself.
Market conduct
Wash trading, spoofing, layering, and coordinated pump-and-dump schemes are manipulation whether on an exchange or in a decentralized pool. Undisclosed paid promotion by influencers violates FTC endorsement guides and may also be securities fraud.
Worked example
An influencer promotes a token to followers without disclosing that the issuer paid for the post, while also holding a large position and selling into the buying. The non-disclosure is a deceptive endorsement; the selling into promoted demand supports manipulation and fraud claims. Both the conduct and the omitted disclosure matter.
Traps
- Arguing that code is law and therefore no consumer duty exists.
- Treating a disclosure as adequate because it appears in a 40-page terms document.
- Focusing on blockchain exploits while ignoring simple social engineering.