DOJ Charges 18 in Cryptocurrency Fraud Case, Seizes Over $25 Million
The Department of Justice (DOJ) has unsealed charges against 18 individuals and entities for widespread fraud and market manipulation. The scheme, which involved cryptocurrency companies, market makers, and fraudulent trading bots, resulted in the seizure of over $25 million worth of cryptocurrency. This case, the first of its kind, exposes the dark underbelly of crypto markets, with tactics straight out of traditional financial fraud playbooks.
According to the DOJ, charges were brought against leaders from four cryptocurrency companies and four financial services firms, commonly referred to as “market makers”, responsible for facilitating wash trades to inflate cryptocurrency prices artificially. The charges, unsealed in Boston, have already led to four guilty pleas and the apprehension of additional suspects in Texas, the United Kingdom, and Portugal.
The fraudulent activities described in the press release revolve around pump-and-dump schemes, a type of market manipulation where false trading activity is created to inflate the value of a cryptocurrency. The DOJ alleges that the leaders of these cryptocurrency companies made “false statements about their tokens” and engaged in “sham trades” to make the cryptocurrencies appear valuable to new investors. Once the prices were artificially inflated, the defendants allegedly sold off their tokens at a premium, scamming unsuspecting investors in the process.
One of the most prominent companies involved in the scheme is Saitama, a cryptocurrency firm that, at its peak, had a multi-billion-dollar market value. The company, along with others, hired financial services firms to “wash trade their tokens in exchange for payment“, a deceptive tactic designed to fool investors into thinking the tokens were in high demand.
The DOJ press release highlights the crucial role played by market makers—firms that facilitate trading activity. According to the investigation, market makers like ZM Quant, CLS Global, and MyTrade were hired to execute wash trades for cryptocurrency companies, including NexFundAI, a company created under the direction of law enforcement to expose these illegal practices. The market makers are alleged to have conspired with cryptocurrency companies to “make [other buyers] lose money in order to make profit,” according to one of the defendants.
Gotbit, another market maker, and its CEO and two directors were similarly charged for participating in a parallel fraud scheme.
Authorities are continuing to investigate other cryptocurrency-related frauds, and more charges may follow. For now, if you believe you were affected by the schemes described in this investigation, the DOJ encourages you to fill out a form to provide relevant information on your transactions.
