Overview of Fraud Charges in the Crypto Industry
On Wednesday, federal prosecutors launched a significant crackdown on widespread fraud and market manipulation in the cryptocurrency sector, charging three companies and 15 individuals. This unprecedented action comes after the FBI’s innovative creation of a new digital token to aid in uncovering criminal activities within the crypto landscape.
Charges Against Companies and Individuals
Top prosecutors in Boston have set their sights on several companies, including Gotbit, ZM Quant, and CLS Global, along with leaders and employees linked to these and other firms. This extensive investigation resulted in the arrests of four individuals and five plea agreements. Furthermore, authorities seized over $25 million in cryptocurrency, marking a substantial victory in the battle against corruption in the crypto market.
Allegations of Wash Trading and Pump-and-Dump Schemes
The companies involved are accused of engaging in wash trading, a deceptive practice used to artificially inflate token prices. By creating a façade of increased trading activity, they aimed to attract unsuspecting investors. Federal prosecutors detailed that the defendants subsequently executed a “pump and dump” scheme, cashing in on the artificially inflated valuations of their digital tokens.
Key Arrests: Saitama and Gotbit Executives
Among the implicated parties is Saitama, one of the largest cryptocurrency firms, which once boasted a market capitalization in the billions. Saitama’s chief executive, Manpreet Kohli, was apprehended on Monday in the UK. Additionally, five other current or former employees of the company have also been charged, with three already pleading guilty.
In a related arrest, Aleksei Andriunin, the CEO of Gotbit, was detained in Portugal. Gotbit is identified as a crypto market maker with activities reportedly spanning from 2018 to 2024, during which it is alleged to have engaged in manipulating token trading volumes for various clients.
The FBI’s Innovative Approach to Investigate Crypto Fraud
Acting US Attorney Joshua Levy remarked on the intersection of modern technology and traditional fraud schemes, stating, “These are cases where an innovative technology – cryptocurrency – met a century-old scheme – the pump and dump.” He emphasized the serious consequences of making false statements that deceive investors, labeling such actions as outright fraud.
The investigation also led to the filing of lawsuits by the US SEC, FBI, and DOJ against Gotbit and other involved crypto firms for their deceptive practices.
Market Manipulation Tactics Unveiled
According to prosecutors, these crypto companies utilized “market makers” to engage in wash trading, thereby profiting at the expense of unsuspecting buyers. One market maker defendant, who has agreed to plead guilty, described to potential clients the goal of these manipulative practices, stating, “We have to make [the other buyers] lose money in order to make profit.”
NexFundAI: A Tool for Uncovering Fraud
The FBI’s creation of a token, dubbed NexFundAI, was an integral component of this crackdown, part of an operation named “Operation Token Mirrors.” Allegations state that firms like ZM Quant, CLS Global, and another crypto entity, MyTrade, engaged in wash trading involving this token, designed to manipulate trading figures to present an appealing façade to investors. Gotbit’s CEO and two directors are similarly charged with engaging in equivalent schemes.
Additional Charges and Individuals Involved
Alongside the prominent firms and executives, additional individuals working in the cryptocurrency sector were charged for their roles in promoting market manipulation. This includes Liu Zhou, founder of MyTrade, who has indicated a willingness to plead guilty, and others like Riqui Liu and Baijun Ou, both associated with ZM Quant, as well as Andrey Zhorzhes from CLS Global. Other charged individuals include Michael Thompson from Virginia, connected to VZZN, and Bradley Beatty of Florida, who allegedly misrepresented his company, Lillian Finance, in fraudulent schemes.