The FBI used a fake cryptocurrency to trap fraudsters involved in wash trading and market manipulation across the crypto industry.
FBI Targets Crypto Fraud
In a groundbreaking operation, the U.S. government indicted 18 individuals and companies for market manipulation within the cryptocurrency industry. Charges were unveiled in Boston, where leaders of crypto firms and financial services companies, known as market makers, were accused of rigging prices through fraudulent trades.
Wash Trades and Pump-and-Dump Tactics
The accused companies engaged in wash trading, where they manipulated token prices to create artificial demand. This was followed by a pump-and-dump scheme, where the inflated tokens were sold off, causing massive losses for unsuspecting investors. Authorities have so far seized over $25 million in crypto and neutralized numerous trading bots that carried out wash trades across 60 different tokens.
Arrests and Guilty Pleas
Several defendants have already pleaded guilty or agreed to do so, while others were apprehended in various countries, including the U.S., UK, and Portugal. The fraudulent activities of these firms, including major players like Saitama, saw market valuations soar to billions before their operations were uncovered.
NexFundAI: FBI’s Undercover Crypto
In a clever twist, the FBI set up NexFundAI, a fake crypto company, to catch criminals involved in wash trading. Unaware they were dealing with a government creation, the defendants used NexFundAI tokens in their schemes. This sting marks the first time law enforcement used a fake cryptocurrency to catch fraudsters.
Market Manipulators Caught
Four companies—ZM Quant, CLS Global, MyTrade, and Gotbit—along with their employees, have been charged with conspiring to wash trade tokens, with Gotbit’s CEO and directors running similar operations. These companies manipulated prices by creating false demand to attract new investors.
Warning to Crypto Investors
The U.S. Attorney’s Office and FBI issued strong warnings to cryptocurrency investors, urging caution in an industry ripe with scams. Acting U.S. Attorney Joshua Levy highlighted the need for investors to conduct thorough research before diving into digital assets, while FBI Special Agent Jodi Cohen called the case a “new twist on old-school financial crime.”
Community Warnings
Interestingly, on-chain investigator ZachXBT had warned the crypto community a year earlier about Gotbit’s questionable practices. He claimed the company was manipulating token prices to generate false demand and profit at the expense of investors.
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