FBI’s NexFundAI Exposed Crypto Market Manipulation
On Wednesday, October 10, 2024, the FBI revealed the establishment of an Ethereum-based token, NexFundAI, to investigate crypto pump market manipulation that led to the accusation of 18 individuals and entities for widespread fraud and wash trading schemes.
Based on the results of the investigation the Securities and Charges Commission (SEC) announced in a press release that it has charged three “market makers” and nine individuals accused of playing roles in allegedly artificial inflation schemes to increase the prices of some cryptocurrencies.
In a parallel move, the Department of Justice (DoJ) charged 18 people and entities involved with what they called “widespread fraud and manipulation” in crypto markets.
The investigation unveiled some illegal activities, such as tokens made of false information and “wash trades”-a practice of trading by entities against themselves, showing a fake market of activity. Such activities were meant to deceive investors into thinking that there is high demand for certain tokens.
FBI’s Crypto’s Secret Trap
The three major market makers where, ZMQuant, CLS Global, and MyTrade, which were accused of implementing wash trading practices to manipulate the crypto pump market. What they did not know, however, was that these were dealings with the FBI’s NexFundAI-a token covertly created for the very purpose of the operation.
Jodi Cohen, special agent in charge of the FBI’s Boston division, summed up the whole operation explaining, “What we found was a modern twist on an old financial crime. These charges are aimed at leaders of four cryptocurrency firms and their associates who devised a complex trading scheme that swindled honest investors out of millions.”
“Crypto Pump and Dump” Tactics Exposed
One of the suspects, Liu Zhou, identified as a “market maker” for MyTrade MM boasted how the company could manipulate the market. The prosecutors refer to Zhou, who explicitly boasted to promoters of NexFundAI about how MyTrade MM was superior because it had the potential to “control pump and dump” and to easily commit insider trading.
An FBI spokesperson mentioned to CoinDesk that that the trading activity was kind of limited when done with NexFundAI token, while no other information was provided.
In a press conference, on the other hand, acting U.S. Attorney Joshua Levy did confirm that trading for the token in question has, in fact, been disabled according to CoinDesk.
From its part, the DoJ has also recovered $25 million of the fraudulent gain and will be refunding it to investors who were affected.
The case puts into perspective certain risks of investing in crypto pump markets and how authorities remain cautious in their crackdown on fraudulent behavior in this sector.
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