The influential figures of the New York Stock Exchange and the market makers from the Hong Kong Stock Exchange play a pivotal role in providing liquidity, significantly impacting market valuations. This influence is particularly pronounced in the cryptocurrency sector, where they seemingly hold the capability to determine the fate of alternative coins. Recently, U.S. regulators have collaborated to target several market makers, including Gotbit, conducting sting operations that have led to allegations of market manipulation and fraud—marking a significant development in regulatory enforcement.
### Multiple Market Makers and Employees Charged, Over $25 Million in Cryptocurrency Seized
On October 9, a coordinated effort by the U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Department of Justice (DOJ) resulted in charges against eighteen individuals and entities linked to extensive fraud and market manipulation within the cryptocurrency landscape. Among those implicated are Gotbit Consulting, ZM Quant Investment, CLS Global, and Saitama. Court filings disclose that these firms engaged in wash trading practices for various crypto projects, artificially inflating trading volumes to mislead potential investors and subsequently sell tokens at inflated valuations. Notably, Saitama emerged as the most significant offender, once boasting a market capitalization in the billions. Gotbit, a market maker known for its involvement in MEME projects such as BONK and PENG, has also faced scrutiny due to several of its collaborative projects being identified as rug pulls—scams where developers abandon a project after taking investors’ funds.
Alexey Andryunin, the founder of Gotbit, revealed in a Coindesk interview that the company relied on market manipulation for its operations, detailing how it engineered software to artificially boost crypto trading volumes while evading detection. He claimed that Gotbit’s market-making services could elevate a token’s trading volume to levels sufficient for listing on platforms like CoinMarketCap, even achieving rankings between 300 and 500. However, Andryunin acknowledged the ethical concerns surrounding Gotbit’s operations, noting that their activities would be classified as financial crimes if conducted on established exchanges like Nasdaq. Currently, he faces multiple charges including wire fraud, market manipulation, and conspiracy to launder money.
ZM Quant, which promotes itself as a trading bot capable of generating trading volume, is accused of providing market manipulation services to Saitama and NexFundAI. The lawsuit indicates that ZM Quant communicated with clients via Telegram and video calls, discussing methods to execute trades rapidly to enhance trading volume and prices, alongside strategies to utilize multiple wallets to mask the extent of false trading. CLS is also implicated in the charges of wire fraud and conspiracy, having facilitated clients in executing millions of dollars in fictitious trades daily, allowing tokens to circumvent exchange listing fees and artificially inflate sales figures. At its pinnacle, Saitama claimed a market value of $7.5 billion, with its leadership actively engaging in market manipulation through deceptive public statements and clandestine sales, garnering tens of millions in profits. Saitama’s manipulative strategies commenced in 2021, where they created the façade of large purchases through numerous small transactions across different wallets to entice investors, later enlisting ZM Quant and Gotbit for wash trading on exchanges. The operation culminated in the seizure of over $25 million in cryptocurrency, alongside the disabling of multiple trading bots responsible for millions in wash trades across approximately 60 different cryptocurrencies.
### FBI Issues Token Sting Operation, Accused of Copyright Infringement
Significantly, the crackdown on these crypto market makers stemmed from an FBI sting operation. In the “Token Mirror Operation,” the FBI developed a token called NexFundAI on the Ethereum blockchain, along with a corresponding crypto company, to engage with market makers about potential collaboration. Entities like ZM Quant, CLS Global, and MyTrade were approached, agreeing to assist in the manipulation of this token. While trading of the token occurred, the FBI monitored its activities closely to mitigate risks for retail investors. On-chain data indicates that the trading functionalities of the token were disabled 21 days ago. However, critiques arose regarding the FBI’s issuance of the NexFundAI token, as Abstract Chain contributor @0xCygaar noted potential copyright violations under the MIT License. The FBI reportedly replicated several library files from OpenZeppelin in the token’s smart contract without including the necessary licensing information, which is a requirement under the terms of the MIT License.
In light of this investigation, U.S. Acting Attorney Joshua Levy emphasized that this case marks a significant identification of fraud in the cryptocurrency sector. He pointed out that wash trading has been prohibited in traditional financial markets and reiterated that the same standards apply to cryptocurrencies. These cases illustrate the intersection of innovative technology with long-standing fraudulent practices, leading to inflated sales figures. Ki Young Ju, founder of CryptoQuant, remarked on the inevitability of regulatory measures in the cryptocurrency space, suggesting that such actions will help dispel its reputation as a gamble. ChainCatcher advises readers to approach blockchain technology critically, enhance their awareness of risks, and exercise caution regarding virtual token offerings and speculative investments. All information provided on this site is intended solely as market updates or the opinions of involved parties and should not be construed as investment advice. If any sensitive content is detected, users are encouraged to report it for timely resolution.
