A judge has unsealed a significant criminal case brought by the Department of Justice (DOJ) against eighteen individuals and companies accused of manipulating cryptocurrency markets and artificially inflating token values. The complaint reveals that the operation specifically targeted a multi-billion-dollar crypto firm and utilized a deceptive scheme involving a new cryptocurrency created by the FBI.
This indictment marks the DOJ’s first criminal prosecution of financial services firms for crypto market manipulation, following previous charges against Avraham Eisenberg, who was convicted in April for rigging the Mango Markets platform.
One of the most striking aspects of the case is the FBI’s innovative approach to capture the defendants. Jodi Cohen, special agent in charge of the FBI’s Boston office, stated that the Bureau took the “unprecedented step” of developing its own cryptocurrency token and a fictitious company to help apprehend the alleged perpetrators.
Long-standing Issues in the Crypto Industry
Market manipulation is a known issue in the cryptocurrency sector, with practices like wash trading—where participants fake buy and sell orders to create an illusion of demand—being particularly rampant. Analysts estimate that as much as 50% or more of trading on offshore exchanges may be artificially inflated.
The DOJ’s case targets three market makers and their employees, who are accused of providing wash trading services for compensation. Prosecutors describe the investigation as “the first of its kind,” noting that the practice of pump and dumps is a “century-old scheme.”
To expose the operations, the FBI developed a token named NexFundAI, which operated on the Ethereum blockchain. Investigators engaged with market makers to discuss using their services. One defendant, who identified himself as the “mastermind,” revealed that his company employed bots to simultaneously buy and sell on centralized exchanges to inflate trading volumes. He requested an upfront payment of $2,000 during an in-person meeting in September. Just last week, these bots were still generating millions in wash trades before being deactivated at law enforcement’s request.
According to crypto price tracker DEX Screener, NexFundAI continues to trade actively, boasting a market cap of approximately $237,000.
Manipulation at Saitama and International Connections
Several defendants were associated with Saitama, a Massachusetts-based crypto firm accused of manipulating its token price to achieve a market valuation of $7.5 billion. The DOJ alleges that Saitama collaborated with Gotbit, one of the accused market makers, to artificially inflate its token’s value, with executives secretly selling their tokens for tens of millions in profits. A cofounder of Gotbit previously admitted to CoinDesk that their business practices were “not entirely ethical.”
Some defendants operated internationally, with activities in Portugal and Russia, and five have already pleaded guilty or indicated intentions to do so. In addition to the DOJ indictment, the Securities and Exchange Commission (SEC) has filed civil complaints against the market-making operations for violations of securities laws.
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