Federal prosecutors charged four purported market makers, a handful of crypto projects, and over a dozen individuals with manipulating various crypto markets Wednesday, saying they profited from fees and selling manipulated coins at elevated values.
According to charging documents unsealed Wednesday, Gotbit, CLS Global, MyTrade and ZM Quant wash traded various tokens to make it appear they had more legitimate activity than they actually did, selling some of these tokens at “artificially inflated prices” to others, marketing these coins on various platforms and convincing exchanges to let them buy tokens with reduced fees.
The U.S. Securities and Exchange Commission also brought charges against ZM Quant and employees Baijun Ou and Ruiqi Lau; Gotbit and employee Feder Kedrov; and CLS Global with employee Andrey Zhorzhes, alongside a number of individuals described as “crypto asset promoters”: Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran and Vy Pham. A representative for the Department of Justice (DOJ) said that the cases were referred to prosecution by the SEC over two years ago.
Prosecutors say that the market maker defendants publicly claimed to be legitimate market makers offering legal services, but privately offered clients illegal services including wash trading.
At least in Gotbit’s case, the illegal offerings weren’t really all that private: in 2019, Gotbit co-founder Alexey Andryunin, then a 20-year-old college sophomore, explained to CoinDeskexactly how the wash trading services he offered his clients worked. He was blunt about the questionable nature of his business, admitting that Gotbit was not registered in any jurisdiction because it was “not entirely ethical.” Separate criminal charges have been filed against Andryunin.
ZMQuant was registered in the British Virgin Islands, but the employees named in its indictment were based in Hong Kong. Though Gotbit was not registered anywhere, it’s employees are believed to be Russian.
The list of manipulated tokens included Robo Inu, which pumped after the indictment was unsealed. Other named defendants include VZZN and Saitama. According to the indictments, each token – including Robo Inu – is classified as a security. Several of the people behind the projects, including Robo Inu founder Vy Pham, have also been named as defendants.
During the course of their investigation, Federal Bureau of Investigation (FBI) agents created an Ethereum-based cryptocurrency, called NextFundAI, with the help of “cooperating witnesses” and used it to “identify, disrupt, and bring these alleged fraudsters to justice,” according to a Wednesday press release. The token, according to court documents, is also a security. A representative for the FBI added that there was limited trading “activity” on the coin but declined to share any additional information beyond what is currently available in public documents, including whether the FBI worked with any crypto companies on the project. Joshua Levy, the Acting U.S. Attorney for the District of Massachusetts, said trading on the token was disabled during a press call Wednesday afternoon.
Levy said during the call that the DOJ already has about $25 million it’s secured from “fraudulent proceeds” that will go back to investors, though he did not share a full total of how much the defendants generated.