Three people have already been arrested for “on-demand market manipulation” on trading platforms as a result of the sting operation.
Following an FBI sting investigation in which investigators developed their own cryptocurrency token, 18 individuals and businesses are charged with “widespread fraud and manipulation,” federal officials announced on Wednesday.
In connection with a pump-and-dump investigation known as “Operation Token Mirrors,” which also resulted in the seizure of over $25 million in cryptocurrency assets, the US Department of Justice said that five individuals had entered guilty pleas or agreed to enter guilty pleas, and that three more had been detained this week in Texas, the UK, and Portugal.
According to the Securities and Exchange Commission, the scheme’s main component was “on-demand market manipulation” on cryptocurrency trading platforms, which used bots or algorithms to create “billions of dollars of artificial trading volume each day and quadrillions of transactions.”
According to the SEC, a purported market maker named ZM Quant was hired earlier this year to facilitate trading in a token known as NexFundAI. In theory, NexFundAI was a means of funding early-stage AI initiatives.
According to an indictment filed by federal officials, ZM Quant employees reportedly advised NexFundAI backers on how to manipulate the token’s price before selling tokens to “cash out at the peaks.” According to the SEC, ZM Quant’s transactions accounted for almost 80% of NexFundAI’s trading volumes at one time in May.
“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,” said Jodi Cohen, an FBI special agent, in a statement. “The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt and bring these alleged fraudsters to justice.”
ZM Quant, however, was not aware that NexFundAI was a weapon of federal law enforcement officers determined to dismantle the purported pump-and-dump scheme, not just another nascent cryptocurrency token with aspirations of a high valuation.
The SEC claims that NexFundAI generated $4,600 in fake trading volume in just one day of trading on May 31.
Charges are also imposed on workers of cryptocurrency firms Saitama, Robu Inu, VZZN, and Lillian Finance, as well as market makers Gotbit Consulting, CLS Global FZC, and MyTrade MM.
While its leadership “was actively manipulating the market for the Saitama token and secretly selling their Saitama tokens for tens of millions in profits,” the DOJ claims that Saitama once “boasted a market value of $7.5 billion.”
The alleged market manipulation campaign by Saitama was linked by federal law enforcement officers to July 2021, when a Saitama leader privately messaged another about a plan to “create an illusion of massive buys and new holders” in order to “incite ppl to buy more.”
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