US Regulators Team Up to Charge Multiple Market Makers, Seize Over $25 Million in Cryptocurrency

The "experts" of the New York Stock Exchange and the "market makers" of the Hong Kong Stock Exchange are recognized as important liquidity providers

The New York Stock Exchange's "specialists" and the Hong Kong Stock Exchange's "market makers" are both recognized as important liquidity providers in the market, having considerable influence on market prices, especially in the crypto space where they hold the "power of life and death" over altcoins. Recently, U.S. regulators have teamed up to lure several market makers through sting operations, bringing charges of market manipulation and fraud.

The U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Department of Justice (DOJ) announced joint charges on October 9 against eighteen individuals and entities for large-scale fraud and manipulation in the crypto market, including Gotbit Consulting, ZM Quant Investment, CLS Global, and Saitama.

According to court documents, these institutions secretly provided wash trading services to crypto projects, exaggerating trading volumes to create a false impression of trading activity and attracting investors to sell tokens at inflated prices. Among them, Gotbit is a market maker heavily involved in the MEME sector, participating in MEME projects such as BONK, ANALOS, DUKO, PENG, and SOLAMA. However, due to multiple collaborative projects being rug pulls, Gotbit has also faced scrutiny. In fact, Gotbit's founder, Alexey Andryunin, stated in an interview with Coindesk that the platform used market manipulation as a means of livelihood and described how it developed code to artificially inflate crypto trading volumes while avoiding detection. In that report, Andryunin claimed that Gotbit's market-making services could boost a token's "trading volume" to levels sufficient for listing on CoinMarketCap, even ranking between 300 and 500. However, Andryunin also admitted, "Gotbit's business is not registered in any jurisdiction and is not entirely ethical; doing what we do now on Nasdaq would constitute financial crime." Currently, Andryunin is charged with wire fraud, conspiracy to manipulate the market, wire fraud, and conspiracy to launder money.

The largest manipulator among them was Saitama, which once reached a market value of several billion dollars, with the project's leadership actively manipulating the market through various false public statements and secretly selling to gain tens of millions of dollars in profits. Saitama's market manipulation activities began in 2021 when the project created the illusion of large purchases and new holders by making small purchases of tokens through multiple crypto wallets, stimulating investor buying, and subsequently hired ZM Quant and Gotbit for wash trading on exchanges.

ZM Quant claims to be a trading bot that can "create trading volume," providing market manipulation services for Saitama and NexFundAI. The lawsuit reveals that ZM Quant discussed these illegal services with clients through Telegram messages and video conferences, such as how to "possibly trade ten or twenty times" per minute to increase trading volume and raise prices, as well as how to use multiple trading wallets to avoid overly false trades.

CLS is also charged with wire fraud and conspiracy to manipulate the market and wire fraud. CLS allowed each client's cryptocurrency to conduct millions of dollars in false trades daily, enabling these tokens to bypass exchange listing fees and inflate sales.

The enforcement action against these crypto market makers was primarily driven by a sting operation from the FBI. Notably, the FBI created a token named NexFundAI on Ethereum and a crypto company called NexFundAI, using the identity of the company and the token to meet with market makers to discuss cooperation, including ZM Quant, CLS Global, and MyTrade, all of whom agreed to assist in manipulating the token.

Although the token had been traded, the FBI also monitored it to reduce the risk of retail investors purchasing it. On-chain information shows that the token's trading function was shut down 21 days ago.

However, regarding the "sting token" issued by the FBI, Abstract Chain contributor @0xCygaar pointed out on X platform that the FBI allegedly violated the MIT License when issuing the NexFundAI token, which may constitute copyright infringement. The FBI directly copied several library files from OpenZeppelin in its smart contract but failed to attach the required license declaration in the code. According to the MIT License, all copies or significant portions of the software must include the license declaration.

As for this investigation, U.S. Acting Attorney Joshua Levy stated, "This investigation is the first to identify numerous fraudsters in the cryptocurrency industry. Wash trading has long been prohibited in financial markets, and cryptocurrency is no exception. These cases demonstrate the result of innovative technology meeting century-old scams—inflated sales. We will actively pursue fraudulent activities, including within the crypto industry."

"Cryptocurrency will soon be regulated; it's just a matter of time. Regulation will help eliminate its gambling stigma," commented Ki Young Ju, founder of CryptoQuant, regarding this lawsuit event.