The United States Securities and Exchange Commission (SEC) has charged three firms and nine individuals purporting to be market makers with engaging in a coordinated scheme to manipulate the prices of several crypto assets on crypto exchanges.
According to a press release, the defendants orchestrated a trading scheme that artificially inflated the trading volume and price of multiple crypto assets, a fraud commonly known as a “pump and dump.”
Over $25M Confiscated
The SEC confiscated over $25 million in crypto and shut down several trading bots that facilitated millions of dollars in wash trades across approximately 60 digital assets.
The three market makers, ZM Quant, CLS Global, and MyTrade, and their employees are accused of participating in wash trading on behalf of NexFundAI, a crypto token created by the Federal Bureau of Investigation (FBI) as part of the government’s probe. Additionally, a fourth market maker, Gotbit, its CEO, and two directors are also facing charges for running a similar scheme.
While the SEC charged 12 entities, the U.S. Department of Justice (DOJ) listed 18 people facing charges in the combined cases.
Four Plead Guilty
The SEC noted that the defendants used a technique called “wash trading,” a form of market manipulation in which an entity simultaneously sells and buys the same financial instruments, creating a false impression of market activity without incurring market risk or changing the entity’s market position.
This practice is illegal because it misleads other investors into believing that an asset has a higher demand, which can artificially drive up prices.
“With purported promoters and self-anointed market makers teaming up to target the investing public with false promises of profits in the crypto markets, investors should be mindful that the deck may be stacked against them,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement.
The report also stated that four defendants have pleaded guilty, another has agreed to do so, and the FBI has arrested three additional individuals this week in Texas, the United Kingdom, and Portugal.
Jodi Cohen, the special agent leading the FBI’s Boston Division, explained that this initiative aimed to uncover and interrupt the activities of alleged fraudsters.
The court will decide the amounts for disgorgement, prejudgment interest, and civil penalties.
