FBI secretly created token to uncover crypto fraud
The FBI has created a token as part of an investigation into price manipulation in the crypto market, the government revealed on Wednesday. The Ethereum-based token, called NexFundAI, was developed with the help of “cooperating witnesses” to uncover fraudulent activities in the crypto scene.
Market Maker faces charges
As part of the investigation, the US Securities and Exchange Commission (SEC) filed charges against three “market makers” and nine individuals for their alleged involvement in plans to artificially inflate the prices of certain crypto assets. The US Department of Justice (DOJ) charged a total of 18 individuals and companies with “widespread fraud and manipulation” in the crypto market.The defendants are accused of making false statements about their tokens and conducting so-called “wash trades” to simulate active trading. The three market makers – ZMQuant, CLS Global and MyTrade – are said to have either conducted wash trades or organized them on behalf of NexFundAI. However, they were unaware that this token had been created by the FBI.
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New variant of a well-known financial crime
“What the FBI uncovered in this case is essentially a new twist on a well-known financial crime,” said Jodi Cohen, special agent in charge of the FBI’s Boston office, in a statement. “We were able to bring charges against the executives of four cryptocurrency firms, as well as four ‘market makers’ and their employees, who are accused of operating a sophisticated trading scheme that defrauded honest investors of millions of dollars.”Liu Zhou, a market maker at MyTrade MM, reportedly told NexFundAI promoters that MyTrade MM was better than its competitors because they had control over pump-and-dump systems and could easily engage in insider trading.An FBI spokesperson told CoinDesk that trading of the token was limited, but did not share further information. Joshua Levy, acting U.S. Attorney for the District of Massachusetts, confirmed in a press conference on Wednesday that trading of the token had been disabled, according to CoinDesk.The Justice Department has reportedly seized $25 million in “fraudulent proceeds” to be returned to affected investors, another example of how the crypto industry continues to struggle with illegal activities when it comes to traditional regulations and investor safety.
