On Wednesday, a judge unsealed a significant criminal case from the Department of Justice (DOJ) against eighteen individuals and companies accused of manipulating cryptocurrency markets and artificially inflating token values. The complaint reveals that the operation targeted a crypto firm with a multi-billion-dollar market valuation and utilized a new cryptocurrency developed by the FBI as part of its ruse.
This indictment marks the DOJ’s first criminal prosecution of financial services firms for crypto market manipulation, following the earlier conviction of Avraham Eisenberg in April for manipulating the Mango Markets platform.
Innovative Tactics to Catch Suspects
One of the most striking aspects of this case is the FBI’s approach. According to Jodi Cohen, special agent in charge of the FBI’s Boston office, the Bureau took the “unprecedented step” of creating its own cryptocurrency token, NexFundAI, along with a fictitious company to lure the alleged perpetrators.
A Long-standing Issue in Crypto
Market manipulation is a well-known problem in the crypto industry, often involving tactics like wash trading, where participants artificially inflate token prices through fake buy and sell orders. Analysts estimate that as much as 50% or more of trading on some offshore exchanges may be artificially inflated.
The DOJ’s indictment specifically targets three market makers and their employees, who allegedly offered wash trading services for a fee. Prosecutors noted that while this investigation is “the first of its kind,” pump-and-dump schemes have existed for over a century.
FBI’s Operation with NexFundAI
To expose these operations, the FBI developed the NexFundAI token, which operates on the Ethereum blockchain. The Bureau met with the market makers to discuss their services, with one defendant claiming to be the “mastermind” behind the manipulation. This individual explained that his company used automated bots to simultaneously buy and sell tokens on centralized exchanges to inflate trading volumes. During an in-person meeting in September, he requested an upfront payment of $2,000. Just last week, the bots were still executing millions in wash trades before being deactivated by law enforcement.
Currently, NexFundAI is still actively traded, with a market cap of approximately $237,000, according to the crypto price tracker DEX Screener.
Connections to Saitama and Other Firms
Several defendants were affiliated with Saitama, a Massachusetts-based crypto firm that inflated its token price to achieve a market valuation of $7.5 billion. Saitama reportedly collaborated with one of the accused market makers, Gotbit, to artificially boost its token’s value. The DOJ alleges that Saitama executives sold their tokens for tens of millions in profit while maintaining the illusion of legitimacy. In 2019, a Gotbit co-founder admitted to CoinDesk that their business practices were “not entirely ethical.”
Many defendants operated internationally, including in Portugal and Russia, with five already pleading guilty or agreeing to do so. Alongside the DOJ’s indictment, the Securities and Exchange Commission (SEC) has also filed civil complaints against the market-making operations for violating securities laws.
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