US Feds Takes Down Fraudulent Crypto Firms

On 9 October, United States (US) federal authorities charged 14 individuals and four cryptocurrency companies with criminal offenses related to market manipulation and "wash trading," marking a groundbreaking case in the digital asset industry.

The investigation involved collaboration among the US Securities and Exchange Commission (SEC), the Department of Justice (DOJ), and the Federal Bureau of Investigation (FBI).

According to the DOJ, over $25 million in cryptocurrency has been seized, and investigators even created a fictitious digital token to catch the alleged manipulators in action.

The DOJ announced charges against Gotbit, ZM Quant, CLS Global, and MyTrade, which are accused of conducting wash trades to artificially inflate token prices and attract new investors.

Subsequently, the defendants allegedly engaged in a "pump and dump" scheme by selling their tokens.

Acting United States Attorney Joshua Levy said in a statement:

“These are cases where an innovative technology—cryptocurrency—met a century-old scheme—the pump and dump.”

He added:

“Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception.”

The charges extend to the four companies and their 18 associated leaders and employees for their involvement in these illicit activities.

Gotbit, ZM Quant, CLS Global, and MyTrade Indicted

The indictment reveals a range of alleged fraudulent activities, including conspiracy to defraud investors through false advertising, market manipulation, and manipulative trading practices.

It highlights the use of multiple wallets, online marketing strategies, messaging applications, and tactics designed to artificially inflate cryptocurrency prices.

Among the companies implicated, Gotbit has a notorious history of unethical behavior, previously associated with multiple "rug pull" scams where developers vanished with investors' funds, further tarnishing its reputation in the cryptocurrency space.

Gotbit's CEO, Aleksei Andriunin, 26, openly boasted in 2019 about building a business around faking trade volumes at crypto exchanges.

Recently arrested in Portugal, he awaits extradition.

The firm has been linked to unethical practices that contribute to a culture of fraudulent behaviour, including rug pulls.

As part of its investigation, the DOJ revealed that the FBI created a token named NexFundAI during "Operation Token Mirrors.”

Allegations suggest that ZM Quant, CLS Global, and MyTrade engaged in wash trading to manipulate the token's trading figures, making them appear more attractive to potential investors.

Additionally, the DOJ has targeted Gotbit, its CEO, and two directors for orchestrating similar schemes.

Gotbit positioned itself as a hedge fund and meme coin market maker, previously claiming that meme coins could facilitate the onboarding of new companies into the crypto realm.

The firm was also linked to Saitama, which allegedly manipulated the market for its token while secretly selling off substantial holdings for tens of millions in profit, swelling its market cap to $7.5 billion.

In separate civil charges, the SEC accused Gotbit of providing "on-demand market manipulation" by generating fake trading volume, often in the millions of dollars, through self-trading of crypto assets.

The SEC is seeking permanent injunctions against Gotbit, Andriunin, and his associates, along with the return of all illicit profits from their alleged misconduct.

ZM Quant, another US-based firm facing similar charges, has been documented engaging in wash trading to mislead investors about token prices by artificially inflating trading volumes.

US Government Continues to Combat Sham Practices in Crypto Sector

The investigation led by federal prosecutors in Boston has resulted in international arrests, with five individuals already pleading guilty in a significant step towards addressing fraud in the cryptocurrency sector.

Those charged span multiple countries, including Hong Kong, the United Kingdom, and the United States, underscoring the global nature of virtual currency fraud.

These serious allegations raise critical concerns about market integrity within the crypto industry.

Federal prosecutors have indicated that cryptocurrency firms will now face the same rigorous scrutiny traditionally applied to financial institutions, emphasizing a shift in regulatory approach.

This crackdown highlights the US government's commitment to combat fraudulent practices in the cryptocurrency market.

As one of the first criminal prosecutions targeting financial services firms within this sector, it marks a pivotal moment in the ongoing effort to ensure accountability and transparency in cryptocurrency transactions.