Right now the prevailing attitude is that it's legal and nobody will get prosecuted for it. It's certainly possible for this to change, but premined altcoins (creators mine a % before making it public) and other alleged scams such as Quarkcoin (Max Keiser & Bill Still) have happened repeatedly.
My statement was from the angle that if you get ripped off in a situation like this, there is no recourse for you, and not legal advice that you cannot get in trouble for participating in these activities.
I wouldn't expect premines to legally qualify as fraud, since by their nature they can't be done in secret. If someone releases a coin and you see it already has a long blockchain, you know it's premined and can make your investment decision accordingly.
It's perfectly legal if it's not specifically regulated as a financial market. Tons of firms do things quite like this - over-the-counter derivatives are rife with various market manipulations.
Pointing at a bigger gang of crooks and saying, "see, they're doing it too" doesn't make anybody involved less of a crook...
To me, the whole situation is an incredible demonstration of why "free markets solve everything correctly" is only (even potentially) true as N_participants -> infinity - and even more so a direct lesson in how thoroughly a "market" can fail when it's too small...
Why does this make them crooks? This whole thing is just a very convoluted form of gambling -- it's a game. If you bluff when playing poker, does that make you a crook?
In the securities market is it illegal per the securities exchange act of 1934. It is called a bear raid and is normally done by short sellers who have heavily shorted a stock and then collude to drive it lower. It is not as common as the pump and dump and it is true that market manipulation happens all the time just people dont talk about it because it is illegal http://www.investopedia.com/terms/b/bearraid.asp
Considering how little enforcement (none) there is over pump-and-dump scams with pink sheets and the forums those frauds take place in stay open for years, there should be no expectation of prosecution from doing this.
Let me remind people who think the SEC doesn't care of the case of Trendon Shavers: http://www.sec.gov/News/PressRelease/Detail/PressRelease/137... Market manipulation isn't as clear-cut as a ponzi scheme, but the man might pay attention if enough people get burned.
My statement was from the angle that if you get ripped off in a situation like this, there is no recourse for you, and not legal advice that you cannot get in trouble for participating in these activities.