In a landmark move, the FBI created its own cryptocurrency token, NexFundAI, to infiltrate the crypto market and expose fraudsters.
This covert operation, codenamed “Operation Token Mirrors,” involved four major virtual currency companies (Gotbit, ZM Quanto, CLS Global, and MyTrade) on suspicion of market manipulation and fraudulent transactions by U.S. prosecutors. culminated in the indictment of 18 individuals and entities, including: The companies are accused of engaging in widespread fraud, including a “wash trading” scheme that defrauded investors and artificially inflated the value of more than 60 cryptocurrencies.
The FBI, known for innovative tactics in the fight against crime, has taken the unprecedented step of establishing NexFundAI on the Ethereum blockchain. The agency created a website for the token designed to look like any other cryptocurrency project, with a detailed explanation of the token's purpose and potential. However, this token has been a magnet for fraudulent crypto companies that specialize in inflating trading volumes and prices for profit.
Source: NexFundAI via FBI
“The FBI has taken the unprecedented step of creating its own token and company to identify, disrupt, and bring these fraud suspects to justice,” said Jody Cohen, Special Agent in Charge of the FBI's Boston Division. he said. press release.
Wash trading and market manipulation
Wash trading, the practice in which traders buy and sell assets at the same time to engage in artificial trading activity, is at the center of the charges. The co-conspirators are said to have inflated the value of tokens such as the Saitama Token, which once boasted a market capitalization of $7.5 billion. They then carry out “pump and dump” schemes, inflating and manipulating prices to attract unwary investors, then selling off their holdings at the inflated prices, leaving investors with losses. Ta.
The companies behind these frauds, including ZM Quant and Gotbit, are accused of facilitating the operations by hiring market makers to execute fake trades. These companies allegedly used multiple wallets and trading bots to hide the true nature of their transactions, inflating trading volumes and token prices without true market demand.
In one example, a ZM Quant employee described a wash trading strategy as a way to “inflict losses on other buyers in order to make a profit.” The scheme deceived investors into believing that the tokens were in high demand, encouraging them to invest in the false hype.
sauce: F.B.I.
seizure and guilty plea
Authorities have already seized more than $25 million in cryptocurrencies as part of the investigation and disabled multiple trading bots responsible for millions of dollars in fraudulent transactions. Several defendants have pleaded guilty or are negotiating plea deals. Others were also arrested in the US, UK and Portugal. Assistant U.S. Attorney Joshua Levy emphasized that wash trading is illegal under U.S. financial regulations, and that similar laws apply to the rapidly expanding cryptocurrency industry.
“This operation is an important step in cracking down on fraud in the digital asset space,” Levy said. “Wash trading has long been considered illegal in traditional financial markets, and now we are holding crypto companies to the same standards.”
The indictment also includes evidence from Telegram and WhatsApp chats among the co-conspirators, highlighting a sophisticated level of market manipulation. In some conversations, memes and GIFs were used to glorify deceptive acts, adding irony to the operation.
The individuals and entities indicted span the globe, and some of the more prominent individuals include:
– Aleksei Andriunin and Fedor Kedrov of Gotbit Consulting LLC
– Riqui Liu and Baijun Ou of ZM Quant Investment LTD
– Andrey Zhorzhes, CLS Global FZC, LLC
– Liu Zhou of MyTrade MM
These defendants now face severe penalties, including up to 20 years in prison, for market manipulation and wire fraud charges.
Operation Token Mirrors: Investor Warning
The case highlights continuing risks in the cryptocurrency market, where rapid innovation often outstrips regulatory oversight. The FBI sting serves as a warning to other fraudsters looking to exploit the unregulated nature of this space.
Despite the success of Operation Token Mirrors, some cryptocurrency enthusiasts were quick to criticize the FBI for creating tokens that, by design, ensnared those participating in the operation. Critics point to the irony of the FBI's call for victims of the scam (those who unknowingly traded NexFundAI) to come forward as victims of the crime.
As the cryptocurrency market evolves, this case could impact how authorities approach future enforcement actions. The industry, often likened to the “West” of the financial world, could face greater scrutiny and scrutiny as regulators catch up with technology.
For now, defendants remain presumed innocent until proven guilty, but the operation signals the beginning of a new chapter in the fight against crypto fraud.
Cryptocurrency fraud remains prevalent
The FBI's 2023 IC3 Cryptocurrency Report revealed more than 69,000 cryptocurrency-related complaints resulting in more than $5.6 billion in losses, a 45% increase from 2022. 71% of all losses were due to investment fraud. Other scams include tech support, extortion, and government impersonation. Criminals exploit the decentralized nature and irreversibility of cryptocurrencies to commit fraud and money laundering. This report highlights prompt complaint reporting and provides tips to avoid fraud. Older victims especially report being hit the hardest by trust-based investment fraud. For more information, read the full report here.
