Key Takeaways:
The US Federal Bureau of Investigation, or the FBI, has created its own cryptocurrency, called NexFundAI. The purpose of the token is to expose fraudulent actors in the crypto market and combat market manipulation.
The operation, codenamed “Token Mirrors”, was initiated after the Securities and Exchange Commission (SEC) alerted the agency about suspicious market manipulation activity that was being undertaken by several crypto firms. The FBI then used the NexFundAI token to infiltrate and observe the fraudulent practice of market makers indulged in techniques such as wash trading that is used to manipulate the price of cryptocurrencies.
Crypto Companies Use Bots To Create False Impression of High Demand For Multiple Tokens In Massive Pump-and-Dump Scheme
As a result of the investigation, authorities were able to identify several companies and individuals who were using bots to execute fictitious transactions and creating a false impression of high demand to artificially inflate the price of multiple cryptocurrencies. US Prosecutors in Boston have now charged 18 individuals and entities with links to the market manipulation scheme.
This includes several major crypto firms like Saitama, Robo Inu, VZZN, and Lilian Finance, and market-making firms including Gotbit, ZM Quant, CLS Global, and MyTradeMM, all of whom specialized in inflating trading volumes and token prices for profit.
The covert operation involved the FBI arranging meetings with the bad actors and offering them crypto market manipulation services through NexFundAI. The suspects were caught red-handed once they agreed to manipulate the price of NexFundAI in exchange for cash payments.
The charges imposed on the cybercriminals cover a broad scheme of wash trading, where they artificially inflated the value of more than 60 tokens, including Saitama (SAITAMA), which during the scheme’s peak reached a market capitalization of $7.5 billion.
Fraudsters Were Cashing Out At Inflated Prices To Leave Investors With Nothing
According to details of the investigation, the fraudsters allegedly made false claims about the tokens they were promoting and used deceptive tactics to mislead investors. After artificially pumping the price of the token, they would cash out at these inflated values to leave investors high and dry in a classic “pump and dump” scheme.
Companies would hire crypto market makers like ZM Quant and Gotbit to carry out the wash trades. These agencies would execute sham trades using multiple wallets, concealing the true nature of their activity, to create fictitious trading volume to make the tokens they are promoting seem more appealing to investors.
One ZM Quant employee described the scheme as a way to make other buyers lose money in order to make the company a profit.
US prosecutors have seized more than $25 million in various cryptocurrencies and deactivated multiple trading bots responsible for the wash trades. Several defendants in the case have pleaded guilty or agreed to do so in exchange for reduced sentences. The criminals were apprehended in the US, UK, and Portugal.
The defendants face severe penalties for their actions, including up to 20 years in prison for market manipulation and wire fraud. The case also marks the first time the US Department of Justice (DoJ) has criminally prosecuted financial services companies for crypto market manipulation.
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