SEC Charges a So-Called Market Maker and Two Employees in a Crackdown on Manipulation of Crypto Assets Offered and Sold as Securities

In a sting operation emblematic of a John Grisham novel, the SEC charged ZM Quant Investment Ltd.—a British Virgin Islands entity—with manipulating markets and offering unregistered securities.

The SEC has recently taken several enforcement actions against companies and individuals involved in manipulating the markets for crypto assets that are offered and sold as securities. These actions highlight the SEC’s focus on protecting investors from fraud and market misconduct in the digital asset space.

In one case, the SEC charged ZM Quant Investment Ltd., a British Virgin Islands entity, and two of its employees with manipulating the markets for several crypto assets, including Saitama Inu and SaitaRealty. The SEC alleges that ZM Quant engaged in wash trading and other deceptive practices to artificially inflate the price and trading volume of its clients’ tokens.

According to the SEC's complaint, ZM Quant was also involved in an undercover operation with NexFundAI, a fictitious crypto project created by the FBI. During the sting, ZM Quant agreed to generate artificial trading volume to boost the token’s appeal, unaware it was part of an active federal investigation.

The SEC’s complaint further alleges that ZM Quant’s manipulative trading practices led to extreme, unsustainable spikes in trading volume for several tokens, including Saitama Inu and SaitaRealty. In the case of SaitaReality, the trading volume increased from de minimis levels to quadrillions of individual trades and billions of dollars in daily volume within 24 hours. As a result of ZM Quant's manipulative trading, SaitaRealty saw a 412,000,000,000 percent increase in transaction quantity.

The SEC's complaint seeks permanent injunctions to prevent further investor harm and outlines the ongoing threat posed by such deceptive market practices.

In another enforcement action, the SEC charged Gotbit Consulting LLC, a Belize-based entity, and its employee Vy Pham with orchestrating a market manipulation scheme involving the crypto asset “Robo Inu.” The SEC alleges that Gotbit, a self-proclaimed market maker, created a deceptive trading environment for Robo Inu, aiming to lure retail investors into buying the token by fabricating the illusion of a vibrant market.

According to the SEC's complaint, Pham enlisted Gotbit for what can be described as “market manipulation-as-a-service.” Gotbit allegedly used wash trading to inflate the trading volume of Robo Inu, making it appear far more popular than it was. The scheme, powered by trading algorithms and bots, at times generated over $1 million in fake trading volume per day, misleading investors into believing in the asset's legitimacy and market demand.

As evidence of Gotbit's bad faith, the SEC noted that “[i]n pitching their market-manipulation services to potential clients, Gotbit employees touted their ability to pump a token’s price and volume and explained how much token offerors stood to profit from this market manipulation.”

The SEC's complaint alleges that Gotbit's market manipulation scheme ultimately deceived investors into buying Robo Inu at inflated prices, causing them to suffer losses when the scheme collapsed.