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FBI Crafts Fake Crypto Token in Historic Sting to Tackle Market Manipulation, Charges 18
- The FBI has charged 18 individuals and organisations across several different countries with fraud and other crimes following a sophisticated investigation that uncovered widespread cryptocurrency market manipulation.
- As part of the investigation the FBI created its own crypto token, NexFundAI, to allow it to observe ‘market maker’ firms’ attempts to fraudulently pump the token’s price through wash trading and other illegal tactics at the expense of legitimate investors.
- Many of the organisations and individuals charged either worked at or were closely linked to US-based cryptocurrency company Saitama.
It would appear the scammer has become the scammed.
The US Federal Bureau of Investigation (FBI) has charged four cryptocurrency companies (Saitama, Robo Inu, VZZN and Lilian Finance) and four ‘market maker’ firms (Gotbit, ZM Quant, CLS Global and MyTradeMM) alleging they worked together to pump and dump a veritable smorgasbord of shitcoins. Sounds kinda standard for the crypto market doesn’t it?
The twist is that one of these shitcoins, NexFundAI, was actually created by the FBI for the express purpose of catching these dodgy companies as they attempted to fraudulently pump the token’s price.
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.
Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division The FBI’s investigation began after it received a tip off from the Securities and Exchange Commission (SEC) that the crypto company, Saitama, was engaging in market manipulation to increase the price of its token. The FBI’s investigation of Saitama led to the eventual launch of NexFundAI, which allowed the bureau to observe up close how these ‘market makers’ pumped the token at the expense of legitimate investors.
In all, 18 individuals and organisations have been charged with fraud, including four large crypto firms, the leaders of the ‘market making’ firms and several employees of the ‘market making’ firms. So far, four of the alleged fraudsters have pleaded guilty and several wash trading bots — responsible for tens of millions of dollars worth of fraudulent trades in over 60 different cryptocurrencies — have been shut down.
Related: FBI: Crypto Fraud Cases Increase by 45%, Reaching $5.6 Billion
Investigation Started with Saitama, But Uncovered a Network of Dodginess
The FBI received information from the SEC suggesting that Saitama, which at one time had a market cap of over US$7 billion, was engaging in market manipulation to pump the price of its token.
During the course of its Saitama investigation, the FBI identified that Robo Inu, VZZN and Lillian Finance were all also committing fraud and other crimes as they attempted to pump their token prices. All of these companies, other than Lillian Finance, are closely linked to former Saitama employees. The leaders of the four companies are now facing numerous criminal charges.
The FBI says that these companies and their leaders “made false statements about their cryptocurrencies (“tokens”) and executed sham trades in those tokens (“wash trades”) to create the appearance of trading activity that would make the tokens look like good investments.”
Acting United States Attorney Joshua Levy said:
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 message today is, if you make false statements to trick investors, that’s fraud. Period. Our Office will aggressively pursue fraud, including in the cryptocurrency industry.
Joshua Levy, Acting United States Attorney FBI’s Shitcoin Catches ‘Market Makers’ in The Act
During its investigation into Saitama, the FBI began cooperating with several witnesses to launch its token, NexFundAI, to use as bait to get the dodgy ‘market makers’ interested.
Three of these ‘market makers’ — ZM Quant, CLS Global and MyTrade MM — either engaged in, or conspired to engage in, wash trading on behalf of NexFundAI. A fourth ‘market maker’, GotBit and its leadership team were also charged for their involvement in a similar but separate scheme.
Related: ASIC Clamps Down on 615 Crypto Scam Websites as Fraudulent Activities Surge to $1.3 Billion
Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division, said the fraud took advantage of new opportunities presented by blockchain technology:
What the FBI uncovered in this case is essentially a new twist to old-school financial crime. ‘Operation Token Mirrors’ targeted nefarious token developers, promoters, and market makers in the crypto space. 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.
Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division 
Author
Jody McDonald
Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.
