The FBI has taken a unique step in the fight against cryptocurrency fraud by creating its own digital token, NexFundAI, to catch market manipulators. This unusual action resulted in the indictment of four companies and 18 people, including well-known enterprises like Gotbit and ZM Quant, according to multiple news sources. On October 9, the case was unsealed, signifying a turning point in the continuous fight against crypto-related fraud.
A Novel Method For An Age-Old Issue
Manipulation strategies include wash trading, where dealers generate fictitious trading activity to raise token prices. The FBI’s operation is a direct reaction to this problem, which has been compared to venerable “pump and dump” tactics spanning decades.
New: Three cryptocurrency companies and 15 people have been charged with engaging in widespread fraud and market manipulation following an investigation in which the FBI for the first time launched a new digital token to help authorities ferret out crime. https://t.co/rcKSGaY2eE
— Nate Raymond (@nateraymond) October 9, 2024
As revealed by Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, this is the first criminal prosecution of its kind against the financial services companies for crypto market manipulation. The investigation had started following a tip-off from the Securities and Exchange Commission about suspicious activity surrounding a Massachusetts-based crypto company, Saitama.
Acting US Attorney Joshua Levy said the defendants set up fake trades to make the trading rate of different cryptocurrency tokens look higher than it really was, then they sold them, “leaving innocent investors holding the bag.”
Falling For The Trap
NexFundAI allowed federal agents to track how these market players behaved. Under the cover of respectable business, they interacted with these companies only to find dishonest methods that had been misleading investors. One defendant even claimed to be the “mastermind” behind the operations, bragging about utilizing bots to run simultaneous buy and sell orders to generate a false demand.
Shutting Down The Scam
In addition to seizing over $25 million worth of cryptocurrencies, the authorities have shut down many trading bots that were responsible for conducting fraudulent transactions totaling millions of dollars across more than 60 different coins.
Among those accused are Saitama staff members who allegedly manipulated the price of their token to produce a market cap peaked at $7.5 billion. According to the DOJ, Saitama executives sold their inflated tokens covertly while leaving gullible investors scratching their heads.
Five of them have already pleaded guilty, or accepted their plea as part of the legal procedures. Meanwhile, to emphasise how serious these allegations are, the SEC has filed complaints against several parties involved. And this operation also shows the intent of law enforcement in fighting fraud, but not to neglect cautioning other possible violators in the crypto sector.
Featured image from Pexels, chart from TradingView