Major Fraud Charges in Cryptocurrency Market
Eighteen individuals and companies have been indicted for extensive fraudulent activities and manipulation within the cryptocurrency sector. A federal court in Boston has revealed charges against four cryptocurrency firms, four financial services providers known as “market makers,” and their associated personnel. Among the defendants, four have already admitted guilt, one has agreed to do so, and three more have been apprehended this week in locations including Texas, the UK, and Portugal. Authorities have seized over $25 million in cryptocurrency and disabled several trading bots implicated in millions of dollars’ worth of “wash trading” across approximately 60 different cryptocurrencies.
Allegations of Deceptive Practices
The indictment outlines that the accused engaged in spreading false claims about their cryptocurrency tokens while launching their businesses, creating artificial trading activity through fictitious transactions (termed “wash trading”) to mislead investors into believing these tokens were viable investment opportunities. These dishonest tactics reportedly drew in new investors, artificially inflating trading prices. The defendants then capitalized on these inflated prices by selling their tokens, a strategy commonly known as “pump and dump.” Notably, one of the companies involved, Saitama, previously boasted a market capitalization in the billions.
Complicity of Financial Services Firms
These cryptocurrency businesses also enlisted market-making firms to perform wash trading for a fee. A market maker who has agreed to plead guilty stated that their objective in the secondary market was to identify “other buyers from the community, those you don’t know or care about,” with the intention of ensuring that these unsuspecting buyers incurred losses for the firms to profit. Three market makers—ZM Quant, CLS Global, and MyTrade—along with their employees, are accused of executing wash trading for a cryptocurrency company named NexFundAI, which was established by law enforcement for investigative purposes. Another market maker, Gotbit, along with its CEO and two directors, faces similar charges for engaging in these deceptive practices.
Government Response to Cryptocurrency Fraud
“This investigation marks a significant effort to identify and prosecute fraudsters within the cryptocurrency realm,” commented U.S. Acting Attorney Joshua Levy. “Wash trading has long been outlawed in traditional financial markets, and the cryptocurrency space is no exception. These cases highlight the intersection of innovative technology and age-old fraudulent tactics like stock price manipulation. Our office is committed to combating fraud across all sectors, including cryptocurrency.” He further emphasized the importance for online investors to remain vigilant and conduct comprehensive research before making investment decisions in the cryptocurrency sector.
FBI’s Operation Token Mirrors
The FBI has unveiled a new variant of financial crime through “Operation Token Mirrors,” which focuses on unlawful token developers, promoters, and market makers in the cryptocurrency industry. “The criminal actions we have exposed have led to the indictment of leaders from four cryptocurrency companies, along with four market makers and their employees, who are accused of orchestrating a sophisticated trading scheme that defrauded legitimate investors, resulting in significant financial losses,” stated Jodi Cohen, Special Agent in Charge of the FBI Boston Division. The agency has taken unprecedented measures to create its own cryptocurrency tokens and companies as part of the effort to identify and dismantle these alleged fraud networks.
SEC’s Civil Lawsuits
The U.S. Securities and Exchange Commission (SEC) has initiated civil lawsuits against Gotbit, CLS, ZM Quant, Saitama, and Robo Inu for breaches of securities laws. The collaborative efforts of the FBI’s legal attaché offices in Madrid and London, the Portuguese Judicial Police, the European Network of Fugitive Active Search Teams (ENFAST), the UK’s National Crime Agency’s National Extradition Unit, the IRS Criminal Investigation Boston Field Office, and the National Cryptocurrency Enforcement Team were integral to the investigation.
Details of the Indictments
The U.S. District Court in Boston has indicted several individuals and entities, including Aleksei Andriunin, Fedor Kedrov, Qawi Jalili, and Gotbit Consulting LLC. Andriunin, the CEO and founder of Gotbit, was arrested in Portugal and is currently awaiting extradition. Kedrov and Jalili, both employees of Gotbit, face similar charges of wire fraud and conspiracy to manipulate the market. Allegations suggest that Gotbit offered services for market manipulation and wash trading to numerous cryptocurrency businesses, including those based in the U.S., generating millions through these illicit activities.
Further Indictments in Market Manipulation
Additional defendants include Riqui Liu, Baijun Ou, and ZM Quant Investment LTD, accused of providing illegal market manipulation services. Liu and Ou allegedly promoted a trading bot that could artificially inflate trading volume, and they discussed strategies for executing trades at rapid rates to drive up prices deceitfully. Furthermore, Andrey Zhorzhes from CLS Global and Liu Zhou from MyTrade MM are facing charges for similar activities aimed at manipulating the market for their clients.
Charges Against Saitama and Its Executives
Saitama LLC, initially registered in Massachusetts in August 2021, is under scrutiny as its executives face charges related to wire fraud and market manipulation. The company claimed to develop products associated with its tokens, reaching a market value of $7.5 billion at its height. Allegations indicate that the leadership engaged in market manipulation while falsely asserting that their business was approved by regulators and that they had not sold their tokens.
Continued Impact from Robo Inu and Other Ventures
Robo Inu Finance, established by a former Saitama employee, is also implicated in the scheme, with claims of artificially inflating trading volumes similar to those made by Saitama. Other companies involved, like VZZN and Lillian Finance, are also facing allegations of misleading statements and market manipulation, highlighting the pervasive nature of fraud within the cryptocurrency market.
Potential Sentencing and Legal Consequences
Charges related to market manipulation could lead to a maximum of 20 years in prison, while wire fraud charges carry similar penalties. Additional charges related to conspiracy and operating an unlicensed money transmission business can also result in significant prison time and financial penalties, with sentences determined by federal district court judges based on existing guidelines and laws. It’s essential for investors to remain cautious and informed amid the evolving landscape of cryptocurrency investments.
