How the FBI used fake AI fund tokens to catch scammers

Author: Christopher Roark Source: cointelegraph Translation: Shan Ouba, Golden Finance

The FBI's "NexFundAI" token was used to catch suspected market manipulators, but the cryptocurrency community may have confused it with another token.

The FBI used a fake artificial intelligence fund cryptocurrency to catch fraudsters suspected of manipulating the market.
According to the indictment filed on October 7 by the Federal District Court of Massachusetts, the agency called the cryptocurrency "NexFundAI (NEXF)", a cryptocurrency security that claimed to represent shares in a fund related to artificial intelligence.

According to the indictment, the FBI told the scammers that they wanted someone to help manipulate the trading volume of the token. This would deceive investors into believing that the token was more popular than it actually was.

The scammers offered to assist in the scam, and the agency used the evidence collected in the process to prosecute them. This is the first time the FBI has acknowledged the creation of a cryptocurrency during an investigation, and the first time a cryptocurrency market maker has been accused of price manipulation.

Cryptocurrency market makers have often been accused of price manipulation in the past.

In July 2024, the FBI reportedly discovered that cryptocurrency market making firm MyTrade MM offered minimum and maximum volume guarantees to token issuers. The company allegedly made the offer on its website.

Suspected of advertising the My Trade MM volume support service. Source: U.S. Department of Justice.

The agency’s undercover agents met with a team member at cryptocurrency exchange LBank on August 20. LBank used MyTrade as a market maker. The undercover agent agreed to launch the NEXF token on LBank and use MyTrade as a market maker. 

The agents then met with MyTrade founder Liu Zhou (also known as “David Zhou” or “DZ”), who allegedly explained in detail how the company used fake trades to artificially increase trading volume, deceived investors into buying tokens with no real organic interest, and facilitated stock price pumping. “We have to make them lose money so we can make a profit and recoup our listing fees,” Liu allegedly told the agents.

The NexFundAI token was launched on the LBank exchange around October 2. The indictment alleges that on that day, MyTrade MM “conducted millions of dollars’ worth of fake trades for approximately 60 clients.”

The complaint charges Zhou and his two co-conspirators with conspiracy to commit market manipulation and wire fraud, which carries a maximum sentence of five years in prison. Zhou has agreed to plead guilty, according to an Oct. 9 announcement from the U.S. Department of Justice (DOJ).

The DOJ also announced that 18 people were charged in multiple cryptocurrency market manipulation cases, of which the NexFundAI case was just one. Three co-conspirators were named in the NexFundAI case, but only Zhou was named and charged.

Are NexFundAI and “BE54c” tokens the same?

Some crypto users speculated that the token mentioned in the indictment is the token located at the Ethereum address "0x16ca471aE755f8a2cD4eC315A4a7439dcfEBE54c".  

For example, the blockchain analysis company Bubblemaps posted on X on October 10, "So the FBI launched a token... The bubble map looks like this..." It provided a link to the Bubblemaps page for the "BE54c" token.

On the same day, Pop Punk, the creator of the G8keep token discovery protocol, also claimed that the "BE54c" token was correct. They claimed to be the auditor of the contract and posted a crying emoji in response to the idea that they helped the FBI. Coinbase Director J. Connor Grogan agreed that the "BE54c" token was correct. He said the FBI created the token using a wallet account ending in "bf3." The account was funded by another wallet, which itself was funded by a wallet containing a token called "Pornrocket," which Grogan seemed to think was funny. The "BE54c" token may have been created by the FBI. It shares the same name as the token mentioned in the indictment and was created on May 29, just four months after the FBI launched the token on the LBank exchange.

Not Connected to LBank

However, Arkham Intelligence data shows no direct connection between the deployer account of the "BE54c" token and any known LBank wallet.

This suggests that it could be a knockoff of the FBI Token rather than the real thing, or that "BE54c" is the original "NexFundAI" token after which the FBI Token is named.  

This does not definitively prove that the "BE54c" token was not created by the FBI. It is possible that Arkham's data on the LBank wallet is incomplete, or that the token was transferred to another account before being deposited on the exchange.

However, this means that further evidence is needed to prove that this token is the one mentioned in the indictment.