Shortly after 3pm today in Boston, prosecutors charged 14 individuals with federal crimes involving at least four crypto companies: GotBit, CLS Global, MyTrade, and ZM Quant. According to the indictment, this enforcement action is “the first criminal prosecution of financial services firms for market manipulation and sham trading in the crypto sector.”
Employees at MyTrade, ZM Quant, and CLS Global were so eager to take on new clients that they even started to wash trade a token created by feds, NexFundAI. Caught red-handed in the act, law enforcement stepped in to shut down their trading accounts.
Allegedly, the targets of this indictment engaged in widespread fraud and manipulation of crypto asset prices by, among other things, pump-and-dumping under the guise of ‘market making.’ Four defendants have already pleaded guilty and authorities have already seized over $25 million worth of crypto assets.
The alleged market manipulation schemes involved 60 distinct crypto assets, including Saitama which once reached a $7.5 billion dollar market capitalization.
Among those crypto assets was NexFundAI, a token created at the direction of law enforcement as part of the investigation. Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division, noted in the press release that “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.”
The SEC also filed a parallel civil action.
Crypto market-manipulation-as-a-service
The SEC names Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham who allegedly hired so-called ‘market makers’ ZM Quant and Gotbit to provide, rather than actual market making, market-manipulation-as-a-service. This illegal conduct induced investment ‘by creating the false appearance of an active trading market,’ according to the SEC.
GotBit claimed to offer services as a market-maker – a controlled term that bad actors in the cryptocurrency industry borrowed for their own purposes to describe an array of non-market-making activities like proprietary trading and digital marketing services.
Read more: Justin Sun directed wash trading scheme from his US apartment, SEC claims
In a pitch deck apparently from GotBit that was distributed by Virtual Versions, for example, GotBit claimed it would ‘during the first minutes in the price discovery stage, we are going to push the price up to 10x to create FOMO and accumulate as much buying power as we can to reach extreme Xs and sell maximum tokens on the subsequent spike.’
According to the SEC, ZM Quant employees Baijun Ou and Ruiqi Lau, Gotbit employee Fedor Kedrov, and CLS Global employee Andrey Zhorzhes self-traded, manipulated markets, and engaged in trading practices with no economic purpose to create artificial trading volume each day.
At times, according to the complaint, these employees generated quadrillions of transactions and billions of dollars of fake trades.
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