Federal prosecutors on Wednesday charged three crypto companies and 15 individuals with widespread fraud and market manipulation. This action follows an investigation where, for the first time, the FBI created a new digital token to help uncover criminal activities.
Prosecutors in Boston charged Gotbit, ZM Quant, CLS Global, and leaders and employees of these and other companies. This crackdown resulted in four arrests and five plea agreements. Authorities also seized cryptocurrency worth over $25m.
The companies allegedly engaged in wash trading with digital tokens to artificially inflate their prices. This tactic attracted new investors. According to federal allegations on Wednesday, the defendants then sold their tokens in a “pump and dump” scheme.
Top Execs from 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 on Monday in the UK. Five other current or former employees were also charged, and three have pleaded guilty.
Another individual charged is Aleksei Andriunin, CEO of Gotbit, a crypto “market maker” who resides in Russia and Portugal. He was arrested in Portugal on Tuesday. Two of his company’s employees in Russia were also charged.
Prosecutors stated that from 2018 to 2024, Gotbit engaged in wash trading and market manipulation on behalf of several cryptocurrency clients. This activity helped artificially inflate trading volumes for their tokens.
“These are cases where an innovative technology – cryptocurrency – met a century old scheme – the pump and dump,” said Acting US Attorney Joshua Levy. “The message today is, if you make false statements to trick investors, that’s fraud.”
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 Companies Allegedly Hired Market Makers to Exploit Buyers
The crypto companies allegedly hired firms, known as “market makers,” to wash trade their tokens for payment. One market maker defendant, who agreed to plead guilty, described the practice to a prospective client.
He said 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.”
FBI’s Fake Token Triggers Major Crypto Market Manipulation Charges
The Department of Justice said that the FBI created a token called NexFundAI as part of its investigation, dubbed “Operation Token Mirrors.” It alleged that ZM Quant, CLS Global and MyTrade washed the token or conspired to wash it—that is, they manipulated trading to make the numbers more appealing. A fourth market maker, Gotbit, its CEO, and two of its directors are also charged with perpetrating a similar scheme.
Four other individuals who worked at cryptocurrency market makers were also charged. Prosecutors said these individuals advertised market manipulation services to clients.
They include Liu Zhou, the founder of market maker MyTrade, who, according to court papers, has agreed to plead guilty. Also charged are Riqui Liu of the United Kingdom and Hong Kong and Baijun Ou of Hong Kong, who both worked at ZM Quant; and Andrey Zhorzhes of the United Arab Emirates, an employee of CLS Global.
Others charged include Michael Thompson of Virginia, who worked at a crypto company called VZZN, founded by a former Saitama employee, and Bradley Beatty of Florida, whom prosecutors said fraudulently promoted his crypto company, Lillian Finance.
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