US Charges Individuals and Four Crypto Firms for Market Manipulation

Highlights:

• Authorities charged four crypto companies and 15 individuals with fraud and market manipulation.
• FBI created a new digital token to uncover criminal activities for the first time.

• Authorities seized over $25 million in crypto, and four defendants agreed to plead guilty.

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Four crypto companies and 15 individuals have been charged with widespread fraud and market manipulation. This follows an investigation where, for the first time, the FBI created a new digital token to help uncover criminal activity.

Federal prosecutors in Boston charged ZM Quant, CLS Global, Gotbit, MyTrad, and their leaders and employees. Over the past year, the U.S. Justice Department has intensified its crackdown on crypto firms, including Binance. Wednesday’s action marks the “first criminal prosecution of financial services firms” for market manipulation and sham trading in the crypto industry, according to Reuters.

The US SEC, FBI, and DOJ sued #Gotbit and other crypto firms for alleged fraud and market manipulation.#Gotbit previously claimed that they sold $WATER to lower the price to a fair level.

However, #Gotbit sold significantly more tokens than purchased!https://t.co/qtYsQvX6OB pic.twitter.com/8OWV5qOnMi

— Lookonchain (@lookonchain) October 10, 2024

Four defendants have agreed to plead guilty, and over $25 million in crypto has been seized, according to a statement from the U.S. Attorney’s Office for the District of Massachusetts. Prosecutors allege that the defendants established crypto firms, misrepresented their cryptocurrencies, and conducted wash trades to give the false impression of trading activity.

This tactic aimed to convince investors that the tokens were viable investments, driving up their prices. The defendants then sold their tokens at these artificially inflated prices, prosecutors noted. They hired market makers to wash trade their tokens in exchange for payment.

United States Attorney Joshua Levy stated:

“These are cases where an innovative technology – cryptocurrency – met a century old scheme – the pump and dump. The message today is, if you make false statements to trick investors, that’s fraud. Period. Our Office will aggressively pursue fraud, including in the cryptocurrency industry.”

FBI Expands Cryptocurrency Investigation

In the investigation, the Federal Bureau of Investigation created its own cryptocurrency, NexFundAI, to detect misconduct during the investigation.

Special agent in charge of the FBI’s Boston Division, Jodi Cohen, stated:

“The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and bring these alleged fraudsters to justice,”

Earlier this year, the SEC noted that ZM Quant was hired as a market maker for a NexFundAI token, which aimed to invest in early-stage AI projects.

Employees of ZM Quant allegedly advised NexFundAI backers to artificially drive up the token price before selling to “cash out at the peaks,” according to federal officials. At one point in May, ZM Quant’s trades accounted for over 80% of NexFundAI’s trading volume. However, ZM Quant did not realize that NexFundAI was actually a tool for federal agents targeting the alleged pump-and-dump scheme.

BREAKING: The US government has charged crypto market makers with market manipulation and fraud.

To catch them, the FBI (!!!) created a crypto token called NextFundAi to "identify, disrupt, and bring these alleged fraudsters to justice."

— unusual_whales (@unusual_whales) October 9, 2024

SEC Files Civil Charges Against Crypto Firms and Nine Individuals

On Wednesday, the U.S. Securities and Exchange Commission filed civil charges against ZM Quant, Gotbit, CLS Global, and nine individuals. The agency accuses the charged companies—ZM Quant, Gotbit, and CLS Global—of offering “market manipulation-as-a-service” to crypto promoters. This includes Russell Armand, Singh Kohli, Nam Tran, Maxwell Hernandez, Manpreet, and Vy Pham.

The SEC alleges that these promoters hired the firms to inflate trading volumes and manipulate asset prices artificially. This created a false impression of a vibrant and active market for the crypto assets they were selling.  The SEC’s complaints request permanent injunctions, disgorgements, and bans on acting as officers or directors.

Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, emphasized the extent of investor deception.

He stated:

“Retail investors are being victimized by fraudulent activity by institutional actors in the markets for crypto assets.” 

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