In a landmark operation, the US Federal Bureau of Investigation (FBI) has uncovered an alleged widespread cryptocurrency market manipulation scheme involving 18 individuals and four major cryptocurrency companies. The investigation into the incident led authorities to launch their own Ethereum-based token called NexFundAI.
The indictment, unsealed in Boston federal court, alleges that the defendants engaged in “wash trading” and other deceptive tactics to inflate the value of various crypto tokens. Wash trading is the practice of creating artificial trading activity to mislead investors, where the same entity both buys and sells an asset, creating the illusion of high demand. The FBI token was launched with the purpose of infiltrating companies that provide market manipulation services.
The agency's activities revealed that Gotbit, ZM Quant, CLS Global, and MyTrade were some of the companies involved in the fraud.
Jodi Cohen, the FBI special agent in charge of the Boston division, said the move was “unprecedented” and aimed at “identifying, disrupting, and bringing these fraud suspects to justice.” He said that.
The indictment alleges that the defendants manipulated the prices of more than 60 virtual currency tokens, including the Saitama token, which at one time had a “market value in the billions of dollars.”
According to the documents, the defendants used deceptive tactics to attract new investors, “resulting in an increase in the trading price of the tokens” and artificially inflated prices in a pump-and-dump manner. The company said it sold its own tokens.
To conduct wash trades, defendants used market makers such as ZM Quant and Gotbit to execute fake trades using multiple wallets to create the illusion of legitimate trading activity. , made the token look more attractive to investors.
One market maker who pleaded guilty described the tactic as “inflicting losses in order to make a profit” by finding buyers for cryptocurrencies.
The FBI has seized over $25 million in cryptocurrencies and disabled trading bots responsible for millions of wash transactions. Several defendants have already pleaded guilty or agreed to do so, and others have been arrested in the United States, United Kingdom, and Portugal.
Assistant U.S. Attorney Joshua Levy said in a statement that wash trading is a long-established illegal practice in traditional financial markets, and similar rules apply to the crypto industry. Levy added:
These accusations are also a stark reminder of how cautious online investors must be and the importance of doing your homework before jumping into the digital frontier. Anyone considering investing in the cryptocurrency industry should understand how these scams work to protect themselves.
The defendants face up to 20 years in prison for market manipulation and wire fraud. The U.S. Securities and Exchange Commission has currently filed a civil complaint alleging violations of securities laws “in connection with conduct at Gotbit, CLS, ZM Quant, Saitama, and Robo Inu.”
Featured image via Unsplash.
