Eighteen Individuals and Companies Charged in Extensive Fraud Scheme
Federal authorities have taken significant action against eighteen individuals and companies involved in a sophisticated scheme of fraud and market manipulation in the cryptocurrency sector.
This unprecedented move follows an FBI sting operation where agents launched their own cryptocurrency token to expose the fraudulent activities of those in the crypto market.
Operation Token Mirrors Unveils Pump-and-Dump Tactics
The U.S. Department of Justice revealed that five defendants have either pleaded guilty or have agreed to do so, while three others were apprehended in Texas, the UK, and Portugal during this week.
The operation, named “Operation Token Mirrors,” has led to the seizure of over $25 million in cryptocurrency assets.
The investigation revealed a scheme focused on “on-demand market manipulation,” where traders utilized algorithms and bots to generate “quadrillions of transactions and billions of dollars of artificial trading volume each day,” according to the Securities and Exchange Commission (SEC).
NexFundAI: The Illusion of Investment
Central to the investigation is the role of ZM Quant, a purported market maker enlisted to bolster trading for a token known as NexFundAI.
On the surface, NexFundAI appeared to be an investment vehicle for early-stage artificial intelligence projects.
However, federal officials indicated that ZM Quant's employees allegedly advised the backers of NexFundAI on tactics to artificially inflate the token’s price before cashing out at the peak.
At one point in May 2024, trades executed by ZM Quant accounted for over 80% of NexFundAI’s trading volume, highlighting the extent of the manipulation.
Unbeknownst to ZM Quant, NexFundAI was not merely another emerging crypto token seeking high valuations; it was part of a carefully orchestrated operation by federal law enforcement to dismantle the pump-and-dump scheme.
The token was active for only one day, on 31 May 2024, generating a mere $4,600 in artificial trading volume, illustrating the fleeting nature of the manipulative activities.
Charges Filed Against Prominent Crypto Figures
Jodi Cohen, an FBI special agent, stated,
“What we uncovered has resulted in charges against the leadership of four cryptocurrency companies, and four crypto ‘market makers’ and their employees who are accused of spearheading a sophisticated trading scheme that allegedly bilked honest investors out of millions of dollars.”
The investigation has implicated employees from market-making firms Gotbit Consulting, CLS Global FZC, and MyTrade MM, alongside personnel from crypto companies Saitama, Robu Inu, VZZN, and Lillian Finance.
At one point, Saitama reportedly had a market valuation of $7.5 billion, yet its leadership was actively manipulating the market for the Saitama token while secretly profiting by selling their tokens for tens of millions.
The DOJ traced Saitama’s alleged market manipulation back to July 2021, where a leader of Saitama communicated with another about plans to create “an illusion of massive buys and new holders” that would “incite ppl to buy more.”
“Yep,” replied another Saitama backer, who later sent a GIF emblazoned with the words “Pump it up.”
Consequences for Defendants and Market Integrity
The defendants face a multitude of serious charges, including market manipulation, conspiracy to commit money laundering, and wire fraud, with potential sentences reaching up to 20 years in prison.
Acting U.S. Attorney Joshua Levy stated,
“Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception. These are cases where an innovative technology — cryptocurrency — met a century-old scheme — the pump and dump.”
The unfolding legal ramifications not only highlight the vulnerabilities within the cryptocurrency market but also showcases the aggressive measures being taken by federal law enforcement to protect investors and maintain market integrity.
Catherine
Davin
Kikyo
Hui Xin
Joy
Aaron
Jasper
Clement