Federal prosecutors on Wednesday charged three crypto companies and 15 individuals with widespread fraud and market manipulation, following an investigation that saw the FBI create a new digital token for the first time to detect criminal activity.
Prosecutors in Boston charged Gotbit, ZM Quant, CLS Global, and executives and employees of these and other companies. The raid resulted in four arrests and five settlement agreements. Authorities also seized over $25 million worth of cryptocurrencies.
The companies are said to have traded digital tokens in order to artificially inflate their prices. This tactic attracted new investors. According to federal authorities’ allegations on Wednesday, the defendants then sold their tokens in a “pump and dump” scheme.
Top executives of Saitama and Gotbit arrested
Saitama, the largest of these crypto companies, once had a market value in the billions. Its chief executive, Manpreet Kohli, was arrested in the UK on Monday. Five other current or former employees have also been charged, three of whom have pleaded guilty.
Another person who has been charged is Aleksei Andriunin, CEO of Gotbit, a crypto market maker based in Russia and Portugal. He was arrested in Portugal on Tuesday. Two employees of his company in Russia have also been charged.
Prosecutors alleged that from 2018 to 2024, Gotbit engaged in wash trading and market manipulation on behalf of several cryptocurrency clients. These activities helped artificially inflate trading volumes for their tokens.
The US SEC, FBI, and DOJ sued #Gotbit and other crypto firms for alleged fraud and market manipulation.#Gotbit previously claimed that they sold $WATER to lower the price to a fair level.
However, #Gotbit sold significantly more tokens than purchased!https://t.co/qtYsQvX6OB pic.twitter.com/8OWV5qOnMi
— Lookonchain (@lookonchain) October 10, 2024
Crypto firms are said to have hired market makers to exploit buyers
The crypto companies allegedly hired firms called “market makers” to launder their tokens for payment. One accused market maker, who has pleaded guilty, described this practice to a prospective client.
He said the “goal in secondary markets” is to “find other buyers from the community, people you don’t know or don’t care about” because “we have to make [the other buyers] lose money to make a profit.”
FBI fake token triggers serious charges for manipulating the crypto market
The Justice Department said that the FBI created a token called NexFundAI as part of its investigation dubbed “Operation Token Mirrors.” It alleges that ZM Quant, CLS Global and MyTrade laundered or conspired to launder the token – that is, they manipulated trading to make the numbers more attractive. A fourth market maker, Gotbit, its CEO and two of its directors are also charged with operating a similar scheme.
Four other people who worked at cryptocurrency market makers were also charged. Prosecutors allege that these individuals offered market manipulation services to their clients.
They include Liu Zhou, the founder of market maker MyTrade, who has agreed to plead guilty, according to court papers. Also charged are Riqui Liu of the United Kingdom and Hong Kong and Baijun Ou of Hong Kong, both of whom worked at ZM Quant, and Andrey Zhorzhes of the United Arab Emirates, an employee of CLS Global.
Other defendants include Michael Thompson of Virginia, who worked at a crypto company called VZZN founded by a former Saitama employee, and Bradley Beatty of Florida, who prosecutors say fraudulently promoted his crypto company, Lillian Finance.
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