Getty Images; Alyssa Powell/BI
After receiving information from the SEC, federal prosecutors set up a fake company to expose crypto market manipulators.
Both companies have been charged with “wash trading,” which involves artificially increasing trading volume to inflate token prices.
According to prosecutors, this case is the first indictment against a cryptocurrency company.
Federal prosecutors are getting creative in their efforts to catch bad actors in the cryptocurrency market.
Following a tip from the Securities and Exchange Commission, federal prosecutors set up a fake cryptocurrency company to investigate a Boston-based company.
The ensuing sting operation resulted in the destruction of four companies, the seizure of more than $25 million in cryptocurrencies, and the deactivation of approximately 60 cryptocurrencies, Boston prosecutors announced in a press release on Thursday.
These companies and more than a dozen individuals were charged with market manipulation to inflate the value of the tokens, as well as fraud and conspiracy to commit fraud. This is the first charge related to “wash trading” in the virtual currency industry.
This technique involves moving assets back and forth between accounts managed by the same company, creating the illusion of high trading volume and artificially inflating the value of assets.
The sting operation came after the SEC tipped off the FBI about possible market manipulation by a Boston-based cryptocurrency company called Saitama, according to a press release. The company reportedly boasted a market capitalization of several billions at one time.
Following this information, prosecutors launched a fake cryptocurrency company called NexFundAI and created fake tokens. Over the course of a months-long operation, the FBI witnessed three market makers launder cryptocurrency customers’ trading tokens and offer to manipulate the price of NexFundAI’s tokens through video calls and Telegram chats.
In this sting, ZM Quant, CLS Global, and MyTrade were accused of wash trading related to their communications with NexFundAI. A fourth company, Gotbit, was not involved with NexFundAI but was charged with a similar scheme. In this sting operation, 15 people were also indicted, including six people associated with Saitama.
Jody Cohen, special agent in charge of the FBI’s Boston division, said in a statement that the companies’ trading schemes “allegedly defrauded honest investors of millions of dollars.”
Prosecutors say these charges are the first of their kind in the crypto industry, even though wash trading practices have been outlawed and cracked down on in other financial markets.
“Cryptocurrency is no exception. These are cases where cryptocurrencies, a revolutionary technology, ran into a century-old scheme of pump-and-dump. Today’s message is: If you make a statement, it is a fraud,” U.S. Attorney Joshua Levy said in a statement Wednesday.
The accusations come amid a rise in cryptocurrency-related scams. According to the FBI’s 2023 Internet Crime Report, crypto fraud cost investors nearly $4 billion last year. According to one study, at least $75.3 billion in cryptocurrencies have been stolen in recent years through a type of scam known as “pig butchering.”
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