FBI creates crypto token to catch fraudsters in historic market manipulation case

US prosecutors charge 18 individuals and entities in the first criminal prosecution of crypto market manipulation and wash trading.

Key Takeaways

• FBI creates crypto to catch market manipulators in historic case.
• US charges 18 individuals and firms in first-ever prosecution for crypto market manipulation.

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The FBI created its own token, NexFundAI, to expose fraudulent actors in the crypto market. As a result, US prosecutors in Boston have charged 18 individuals and entities, including four major crypto firms—Gotbit, ZM Quant, CLS Global, and MyTrade—in a criminal prosecution for market manipulation.

The charges stem from widespread fraud involving market manipulation and “wash trading” designed to deceive investors and inflate crypto values. Working covertly, the FBI launched the token to attract the indicted firms’ services, which allegedly specialized in inflating trading volumes and prices for profit.

“The FBI took the unprecedented step of creating its very own token and company to identify, disrupt, and bring these alleged fraudsters to justice,” said Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division.

The charges cover a broad scheme of wash trading, where defendants artificially inflated the value of more than 60 tokens, including the Saitama Token, which at its peak reached a market capitalization of $7.5 billion.

The conspirators are alleged to have made false claims about the tokens and used deceptive tactics to mislead investors. After artificially pumping up the token prices, they would cash out at these inflated values, defrauding investors in a classic “pump and dump” scheme.

The crypto companies also allegedly hired market makers like ZM Quant and Gotbit to carry out these wash trades. These firms would execute sham trades using multiple wallets, concealing the true nature of the activity while creating fake trading volume to make the tokens seem more appealing to investors.

One ZM Quant employee described the practice as a way to “make other buyers lose money in order to make a profit.”

Authorities have seized more than $25 million in crypto and deactivated multiple trading bots responsible for millions in wash trades. Several defendants have already pleaded guilty or agreed to do so, while others were apprehended in the US, the UK, and Portugal.

Assistant US Attorney Joshua Levy emphasized that wash trading has long been outlawed in traditional financial markets, and the same rules now apply to the crypto industry. This operation, dubbed “Operation Token Mirrors,” represents a major step in cracking down on fraud in the rapidly expanding digital asset space.

The defendants, presumed innocent until proven guilty, face severe penalties, including up to 20 years in prison for charges of market manipulation and wire fraud. The case serves as a stark reminder of the risks in the crypto market and the importance of due diligence when investing in digital assets.

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