The US Federal Bureau of Investigation (FBI) has created “NexFundAI”, a cryptocurrency created to further their investigation, “Operation Token Mirrors.” The FBI also announced that 18 individuals have been charged for market manipulation and “wash trading” — the first of its kind in the cryptocurrency industry.
The investigation, described as “a new twist to old-school financial crime”, garnered charges against cryptocurrency company leaders and employees from Texas, the UK, and Portugal, and over $25 million in seized cryptocurrency. NexFundAI enabled the FBI to monitor and track illicit activities conducted by cryptocurrency companies and financial service firms, or “market makers.”
These “market makers” allegedly offered to wash trade tokens for their clients to illicitly boost the token value and entice potential investors. in a scheme commonly known as “pump and dump”, the cryptocurrency companies would then sell the tokens at the artificially inflated prices, causing their value to crash. One of the market makers referenced, MyTrade MM, allegedly described their service as “Volume Support,” claiming, “we have to make [the other buyers] lose money in order to make profit.” These market makers were allegedly able to wash-trade millions of dollars on behalf of their clients, and make profits of tens of millions of dollars for the illicit services.
‘Wash trades’ generate millions for 60 cryptocurrencies
Several of the market makers allegedly used bots, algorithms, and codes to generate trading volume. Financial service firm CLS allegedly describes their algorithm that “basically does self-trades, buying and selling…. so the token looks organic and looks live.” Another market maker cited in the document, ZM Quant, allegedly claimed they would wash trade “maybe ten…maybe twenty times per minute.” Several of these bots have been deactivated in the investigation, having allegedly generated millions of dollars in wash trades for approximately 60 different cryptocurrencies. The US Securities and Exchange Commission has also since brought charges against three companies allegedly operating as market makers.
One of the cryptocurrency companies charged, Saitama, is alleged at one point to have boasted a market value $7.5 billion. Saitama heads are accused of making false statements about the company, stating that their business plan had been reviewed by regulators and their token was specifically coded to prevent market manipulation, when neither was allegedly true.
Acting United States Attorney Joshua Levy warns the public to stay wary of cryptocurrency scams, stating that these cases are “a stark reminder of how vigilant online investors must be… People considering making investments in the cryptocurrency industry should understand how these scams work so that they can protect themselves.”
