The Federal Bureau of Investigation has charged three crypto companies and 15 individuals with market manipulation and fraud. To help uncover these crimes, the FBI has for the first time created its own cryptocurrency "NexFundAI".
This week, the US Attorney's Office in Boston announced charges against Gotbit, ZM Quant and CLS Global, as well as executives and employees of these and other companies. Four defendants have already pleaded guilty and authorities have arrested three others in Texas, the United Kingdom and Portugal. According to the indictments, the defendants were responsible for billions of dollars of wash trading in more than 60 cryptocurrencies. To corroborate the allegations, the FBI booked similar services for its own cryptocurrency NexFundAI.
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Market making or market manipulation?
Wash trading refers to deceptively structured transactions that create the false appearance of trading activity, making the tokens in question appear to be good investments. These fraudulent tactics, according to the indictments, attracted new investors and buyers, leading to an increase in the trading prices of the tokens. The defendants then allegedly sold their tokens at these artificially inflated prices. This is known as a classic "pump and dump" scheme, which falls under the category of fraud. Such tactics are prohibited in both traditional and modern financial markets.
One of the charged market makers, who pleaded guilty, described the fraudulent practice to a potential client as follows. The goal in the secondary markets is to find outside buyers from the crypto community. "People you don't know or care about." Ultimately, according to the defendants, other buyers must lose money in order for them to make a profit.
FBI cryptocurrency NexFundAI confirms suspicions
As part of the "Operation Token Mirrors" investigation, the FBI created its own cryptocurrency. "NexFundAI was based on the Ethereum blockchain and was designed to simulate a fledgling crypto startup. The FBI then hired three market makers, ZM Quant, CLS Global and MyTrade, to artificially inflate the cryptocurrency's trading volume. A fourth market maker, Gotbit, along with its CEO and two directors, is also charged with a similar fraud scheme. Such a strategy has never before been used to investigate crypto market manipulation.
“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. What the FBI uncovered in this case is essentially a new twist to old-school financial crime." - Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division
According to the authorities, NexFundAI was publicly traded. The token address was located by the CVJ.CH editorial team using the Ethereum block explorer "Etherscan". However, the cryptocurrency was carefully monitored to minimise risks for retail investors. Prior to the announcement of the investigation, the FBI halted trading in the token. Since then, no transactions have been possible. During the six active trading weeks from May to September, NexFundAI generated a volume of USD 1.06 million.
