FBI creates crypto token to catch fraudsters in historic market manipulation case

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The FBI created its own token, NexFundAI, to expose fraudulent actors in the crypto market. As a result, US prosecutors in Boston charged 18 individuals and entities, including four major crypto firms Gotbit, ZM Quant, CLS Global and MyTrade, in a market manipulation prosecution.

The allegations stem from widespread fraud involving market manipulation and “wash trading” designed to defraud investors and inflate crypto values. Working undercover, the FBI launched the token to enlist the services of the indicted firms, which allegedly specialized in inflating trading volumes and prices for profit.

“The FBI has taken the unprecedented step of creating its own token and company to identify, disrupt and bring to justice these alleged fraudsters,” said Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division.

The charges cover an extensive wash trading scheme in which the defendants artificially inflated the value of more than 60 tokens, including the Saitama Token, which at its peak had a market capitalization of $7.5 billion.

The conspirators allegedly made false claims about the tokens and used deceptive tactics to mislead investors. After artificially inflating the token prices, they would cash out at these inflated values, defrauding investors in a classic pump and dump scheme.

The crypto companies also allegedly hired market makers like ZM Quant and Gotbit to carry out these wash trades. These firms would execute simulated transactions using multiple wallets, hiding the true nature of the activity while creating fake trading volume to make the tokens appear more attractive to investors.

One ZM Quant employee described the practice as a way to “make other buyers lose money in order to make a profit”.

Authorities seized more than $25 million in crypto and disabled several trading bots responsible for laundering millions of trades. Several defendants have already pleaded guilty or agreed to do so, while others have been detained in the US, UK and Portugal.

Assistant US Attorney Joshua Levy pointed out that wash trading has long been banned in traditional financial markets, and the same rules now apply to the crypto industry. This operation, dubbed “Operation Token Mirrors”, represents a major step in combating fraud in the rapidly expanding digital asset space.

The defendants, presumed innocent until proven guilty, face severe penalties, including up to 20 years in prison on charges of market manipulation and wire fraud. The case serves as a stark reminder of the risks in the crypto market and the importance of due diligence when investing in digital assets.

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