The FBI has revealed that it created its own cryptocurrency token, NexFundAI, so it could watch suspected fraudsters use it. On Thursday (October 10) that the Department of Justice announced 18 individuals and entities were charged with “widespread fraud and manipulation in the cryptocurrency markets.”
Federal prosecutors asserted that three market makers—ZM Quant, CLS Global and MyTrade—along with their employees had been allegedly involved in “wash trading” or “conspiring to wash trade” on behalf of the FBI’s crypto token, NexFundAI.
#BREAKING: As a result of an #FBI Boston investigation, 18 individuals & entities have been charged in connection with 'Operation Token Mirrors,' an international operation targeting widespread fraud & manipulation in the cryptocurrency markets. https://t.co/qRKzszOjjt pic.twitter.com/mllB7bUWow
— FBI Boston (@FBIBoston) October 9, 2024
What is wash trading?
Wash trading is a deceptive financial practice where an investor buys and sells the same security at the same time to manipulate the market. It’s also known as a “pump and dump” scheme. The U.S. Securities and Exchange Commission say the schemes were “intended to induce investor victims to purchase the crypto assets by creating the false appearance of an active trading market for them.”
The conspirators are accused of artificially inflating the value of tokens such as the Saitama Token, which at one point had a market capitalization of $7.5 billion. They allegedly carried out these schemes by driving up prices to lure unsuspecting investors, only to sell off their holdings at these inflated prices, ultimately leaving investors with significant losses.
According to charging documents, Saitama’s leadership was “actively manipulating the market for the Saitama token and secretly selling their Saitama tokens for tens of millions in profits.”
‘New twist to old-school financial crime’
In a statement, Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, said: “The FBI took the unprecedented step of creating its very own token and company to identify, disrupt, and bring these alleged fraudsters to justice.”
He added: “What the FBI uncovered in this case is essentially a new twist to old-school financial crime.”
Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement, stated: “With purported promoters and self-anointed market makers teaming up to target the investing public with false promises of profits in the crypto markets, investors should be mindful that the deck may be stacked against them.”
A fourth market maker, Gotbit, its CEO, and two of its directors were also charged for perpetrating a similar scheme.
Four defendants pleaded guilty, another defendant has agreed to plead guilty, and authorities apprehended three other defendants in Texas, the United Kingdom and Portugal this week.
More than $25 million in cryptocurrency has reportedly been seized and multiple trading bots responsible for millions of dollars’ worth of wash trades for approximately 60 different cryptocurrencies have been deactivated.
ReadWrite has previously reported that the FBI found investors lost a whopping $5.6 billion to crypto-related financial crime last year, marking a 45% increase from what was seen in 2022.
Featured image: Ideogram
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