US prosecutors charge 14 people and 4 companies with crypto fraud
On Wednesday, U.S. prosecutors charged 14 individuals and 4 cryptocurrency companies in an international operation aimed at widespread fraud and manipulation in the cryptocurrency markets.
Four cryptocurrency financial services companies (also referred to as "market makers"), their leaders, and employees were charged in Boston, according to a press release by the United States Attorney’s Office district of Massachusetts.
This announcement is the first-ever criminal accusations against financial services companies for "wash trading" and market manipulation in the cryptocurrency sector.
Fraud charges against financial services firms
Three more defendants were arrested this week in Texas, the UK, and Portugal, and four more have entered guilty pleas, and another has consented to enter a guilty plea. Multiple trading bots that were in charge of millions of dollars' worth of wash trades for roughly 60 different cryptocurrencies have been deactivated, and more than $25 million worth of cryptocurrency has been seized.
The defendants who founded cryptocurrency companies allegedly made false claims about their tokens and engaged in sham trades in order to give the impression that trading activity was taking place, which would have made the tokens appear like good investments.
These deceitful practices drew in new buyers and investors, raising the trading prices of the tokens. The defendants are then accused of engaging in a fraud known as "pump and dump," whereby they sold their tokens at artificially inflated prices. Saitama, the largest of these cryptocurrency companies, was once valued at several billions of dollars.
Additionally, it is alleged that the cryptocurrency companies paid financial services companies, also known as "market makers," to wash trade their tokens. The "objective on the secondary markets" is to find "other buyers from the community, people you don't know about or don't care about," because "we have to make [the other buyers] lose money in order to make profit," according to one market maker defendant who has consented to enter a guilty plea when explaining the practice to a prospective client.
Acting US Attorney Joshua Levy declared, "Our Office will aggressively pursue fraud in the cryptocurrency industry." Levy said numerous scammers in the cryptocurrency sector were found by this investigation, which was the first of its kind. Cryptocurrency is no exception to the financial markets' long-standing ban on wash trading. Today's lesson is that it is fraud to deceive investors by making false claims.
These charges also serve as a clear reminder of the importance of being cautious when investing online and the importance of researching topics before venturing into the digital realm. To protect themselves, those thinking about investing in the cryptocurrency space should be aware of how these scams operate, Levy explained.
To find, stop, and prosecute these suspected scammers, the FBI took the unprecedented step of creating its own token and company, according to Jodi Cohen, Special Agent in Charge of the FBI, Boston Division.
Three market makers, ZM Quant, CLS Global, and MyTrade, along with their employees, are being investigated by the government for allegedly participating in wash trading or conspiring to do so on behalf of NexFundAI, a cryptocurrency company created under law enforcement's direction. The CEO and two directors of Gotbit, a fourth-market maker, are also accused of carrying out a similar scheme.
Other agencies involved in the investigation
The National Extradition Unit of the United Kingdom's National Crime Agency, the Internal Revenue Service Criminal Investigation, Boston Field Office, the Criminal Division's Computer Crime and Intellectual Property Section, the National Cryptocurrency Enforcement Team, Portugal's Policia Judiciaria European Network of Fugitive Active Search Team (ENFAST), the Federal Bureau of Investigation's Legal Attachés (Madrid and London), and the United Kingdom's National Crime Agency all contributed invaluable assistance to the investigation.
SEC files civil complaints
Regarding the actions at Gotbit, CLS, ZM Quant, Saitama, and Robo Inu, the Securities and Exchange Commission (SEC) has brought civil complaints alleging violations of the securities laws.
In a statement, Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement, said the enforcement actions today show once again that institutional actors in the markets for cryptocurrency assets are involved in fraudulent activity that is harming retail investors. Investors should be aware that the deck may be stacked against them as self-appointed market makers and alleged promoters team up together to deceive the investing public with promises of profits in the cryptocurrency market.
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