In a sweeping investigation led by federal prosecutors, three market-making firms have been charged with market manipulation after they allegedly pledged to create fictitious trades to inflate the value of a non-existent cryptocurrency token. What these firms didn’t know was that they had fallen into an elaborate sting set up by US law enforcement agencies.
Representatives from ZM Quant, CLS Global, and MyTrade were among 15 individuals and entities charged with fraud and market manipulation following a probe initiated by the US Securities and Exchange Commission (SEC). The sting operation resulted in the seizure of more than $25 million in cryptocurrency and the deactivation of trading bots used for executing hundreds of wash trades across roughly 60 different digital currencies, according to a statement by the US Attorney’s Office in Boston.
The accused firms had allegedly engaged in wash trading—a process where traders manipulate the market by buying and selling assets between accounts they control to falsely inflate trading volume and value. “If you guys have requirements on the price, for example, like, pump the price from one dollar to two dollars, we will give you a plan,” one market maker stated during a recorded video call on March 18, according to court documents.
Wash trading is illegal and has been outlawed in traditional financial markets for decades. “These are cases where an innovative technology — cryptocurrency — met a century-old scheme: the pump and dump,” said Joshua Levy, Acting US Attorney for Massachusetts.
Origins of the Investigation
The investigation began after the SEC received a tip regarding a crypto firm called Saitama, which was reportedly operating out of the Boston area. Authorities alleged that Saitama manipulated its token’s price through the use of market makers. This initial probe led to the identification of several cooperating witnesses, which enabled the setup of the fake crypto firm, NexFundAI.
NexFundAI, though entirely fictional, was presented as a legitimate company to lure those involved in market manipulation. According to prosecutors, market makers openly discussed strategies for boosting the value of NexFundAI’s token in video calls and private chat groups on messaging platforms like Telegram.
The operation exposed a broader network of illicit activities tied to the accused firms. Among those charged is Aleksei Andriunin, a principal at Gotbit Consulting LLC. Andriunin, who was apprehended in Portugal on October 8 and is now awaiting extradition, was not directly involved with NexFundAI but is accused of running similar schemes for other tokens. Gotbit is said to have made tens of millions of dollars by providing market manipulation services.
A Familiar Face in Crypto Market Manipulation
Andriunin, who gained attention in 2019 when he was a sophomore at Moscow State University, had openly discussed his business model of creating artificial trading volumes, stating, “The business is not exactly ethical,” according to reports. His activities and statements highlighted how easily market manipulation could be conducted in the relatively unregulated cryptocurrency space.
Jodi Cohen, head of the FBI’s Boston office, commented on the case during a press conference, stating that the cooperation between multiple agencies had been critical in unearthing the widespread manipulation scheme. “The sheer scale of the deception we uncovered shows just how vulnerable the cryptocurrency market remains to fraud,” she added.
This investigation marks a significant milestone in the US government’s crackdown on illicit activities within the crypto industry and serves as a stark reminder that traditional market regulations still apply, even in the new-age world of digital currencies. The SEC and FBI are expected to continue pursuing similar cases as they strive to maintain market integrity in the evolving landscape of cryptocurrency trading.
