U.S. DOJ Charges 4 Firms, 14 Individuals Over $25M Crypto Market Manipulation

United States prosecutors have filed charges against four cryptocurrency firms and 14 individuals for engaging in fraudulent schemes. Four of the defendants have already agreed to plead guilty. 

The announcement, made by the U.S. Attorney’s Office for the District of Massachusetts, revealed the seizure of over $25 million in digital assets.

The “Pump and Dump” Scheme

According to the authorities, the defendants misrepresented their digital assets and executed wash trades to artificially boost the perceived trading volume, thereby misleading investors into believing that the tokens were valuable investments. The tactic allegedly allowed the defendants to sell the tokens at inflated prices.

Boston federal prosecutors noted that the firms enlisted market makers, ZM Quant, Gotbit, CLS Global, and MyTrade, along with their executives and staff, to carry out wash trades in exchange for payment.

Acting U.S. Attorney Joshua Levy noted that while the cases involve a new technology – cryptocurrency – the scheme itself is as old as the ‘pump and dump’ strategy. He emphasized that making false statements to deceive investors is considered fraud, and his office will continue to pursue such cases, including those in the digital asset space.

As part of the probe, the FBI created a digital currency named NexFundAI to investigate these fraudulent activities.

Wow, this case get even more insane

The FBI created their own coin called "The NexFundAI Token" and enlisted the services of the firms indicted to catch them

“The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and…

— db (@tier10k) October 9, 2024

Jodi Cohen, special agent in charge of the FBI’s Boston Division, stated that this effort was designed to expose and disrupt the operations of alleged fraudsters.

Meanwhile, the U.S. Securities and Exchange Commission (SEC) filed civil charges against ZM Quant, Gotbit, CLS Global, and nine individuals. The SEC’s complaints accused the defendants of manipulating crypto prices and misrepresenting their projects, seeking penalties that include permanent injunctions and disgorgements.

U.S. DOJ Increases Scrutiny

In recent months, the U.S. Department of Justice (DOJ) has increased its scrutiny of the crypto sector, previously targeting major platforms like Binance. However, this marks the first time federal prosecutors have brought criminal charges against financial services firms for market manipulation and sham trading within the crypto space.

In a related development, United States District Judge Jennifer L. Rochon sentenced David Carmona, the founder of IcomTech, to nearly a decade in prison after prosecutors labeled his firm a cryptocurrency Ponzi scheme that targeted working-class individuals looking for financial security.