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Cryptocurrency News Articles
FBI Created Ethereum-Based Token in Investigation Into Market Manipulation and Sham Trading in Crypto Sector
Oct 10, 2024 at 10:03 am
In a groundbreaking operation, the U.S. Federal Bureau of Investigation (FBI) has exposed an alleged widespread crypto market manipulation scheme involving 18 individuals and four major crypto firms.
The Federal Bureau of Investigation (FBI) has concluded an extensive operation that uncovered an alleged crypto market manipulation scheme, leading to the indictment of 18 individuals and four major crypto firms.
In a bid to infiltrate the firms offering market manipulation services, the agency launched its own Ethereum-based token called NexFundAI. The token was part of a broader effort to gather evidence and expose the illicit activities.
The investigation, which spanned over two years, revealed that Gotbit, ZM Quant, CLS Global, and MyTrade were among the companies involved in the fraudulent practices.
According to the indictment, unsealed in a Boston federal court, the defendants engaged in “wash trading” and other deceptive tactics to inflate the value of various crypto tokens.
Jodi Cohen, an FBI Special Agent in charge of the Boston Division, described the move as “unprecedented” and was intended to “identify, disrupt, and bring these alleged fraudsters to justice.”
The indictment alleges that the defendants manipulated the prices of over 60 cryptocurrency tokens, including the Saitama Token, which at one point had a “multi-billion-dollar market value.”
The document further alleges that the defendants used deceptive tactics to attract new investors “which resulted in an increase in the tokens’ trading prices,” to then sell their own tokens at artificially inflated prices in pump and dump schemes.
To execute the wash trades, the defendants are accused of employing market makers like ZM Quant and Gotbit, which would execute sham trades using multiple wallets, creating the illusion of legitimate trading activity and making the tokens appear more attractive to investors.
One market maker who pleaded guilty described the tactics as finding buyers from the cryptocurrency to make them “lose money in order to make a profit.”
The FBI has seized more than $25 million in cryptocurrency and deactivated trading bots responsible for millions in wash trades. Several defendants have already pleaded guilty or agreed to do so, and others have been arrested in the United States, the United Kingdom, and Portugal.
Assistant US Attorney Joshua Levy said in a statement that wash trading is a long-established illegal practice in traditional financial markets, and the same rules apply to the cryptocurrency industry.
“These charges are also a stark reminder of how vigilant online investors must be and that doing your homework before diving into the digital frontier is critical. People considering making investments in the cryptocurrency industry should understand how these scams work so that they can protect themselves,” Levy added.
The defendants now face up to 20 years in prison on charges of market manipulation and wire fraud.
In a related development, the U.S. Securities and Exchange Commission has filed civil complaints alleging violations of securities laws in “relation to the conduct at Gotbit, CLS, ZM Quant, Saitama and Robo Inu.”
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