TLDR
- First-ever criminal charges for crypto market manipulation filed against 18 individuals and entities
- Defendants accused of wash trading to artificially inflate cryptocurrency values
- Over $25 million in cryptocurrency seized and trading bots deactivated
- FBI conducted undercover operation “Token Mirrors” to investigate fraudulent activity
- SEC filed related civil complaints against the accused
In a groundbreaking move, U.S. federal prosecutors have filed criminal charges against 18 individuals and entities for alleged widespread fraud and market manipulation in the cryptocurrency industry.
This marks the first-ever criminal case targeting market manipulation and “wash trading” in the digital asset space.
The charges, announced on October 9 by the U.S. Attorney’s Office for the District of Massachusetts, involve leaders from four cryptocurrency token issuers – Saitama, Robo Inu, VZZN, and Lillian Finance – as well as four crypto market makers – ZM Quant, CLS Global, MyTrade, and Gotbit.
Prosecutors allege that the accused engaged in wash trading, a deceptive practice where fake trades are executed to create the illusion of high trading activity.
This tactic artificially boosted the value of various cryptocurrencies, attracting unsuspecting investors.
The defendants are then alleged to have sold their tokens at inflated prices in what is described as a “pump and dump” scheme.
The investigation, dubbed “Operation Token Mirrors,” was led by the FBI. In an innovative approach, FBI agents created their own cryptocurrency token and company to infiltrate and investigate fraudulent activity within the crypto market.
This undercover operation allowed investigators to uncover how specific token issuers and market makers worked together to artificially inflate token prices.
As a result of the operation, authorities seized over $25 million in cryptocurrency and deactivated numerous trading bots responsible for executing wash trades.
These bots were involved in millions of dollars worth of wash trades across approximately 60 different cryptocurrencies.
Four defendants have already pleaded guilty to the charges, while others were arrested in various locations including Texas, the United Kingdom, and Portugal.
Acting United States Attorney Joshua Levy emphasized the significance of the case, stating,
“This investigation, the first of its kind, identified numerous fraudsters in the cryptocurrency industry. Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception.”
Levy also issued a warning to potential investors in the cryptocurrency space, urging them to be vigilant and do thorough research before investing.
He stressed that making false statements to trick investors is fraud, regardless of the technology involved.
Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, described the case as “a new twist to old-school financial crime.”
She highlighted the sophisticated nature of the trading scheme, which allegedly defrauded honest investors out of millions of dollars.
The criminal charges are accompanied by civil complaints filed by the Securities and Exchange Commission (SEC) related to the fraudulent activities uncovered in this investigation.
This case represents a significant step in regulatory efforts to combat fraud and manipulation in the cryptocurrency market.
