Feds on Wednesday hit 14 individuals and four crypto companies with criminal charges for market manipulation and “wash trading” in the digital asset industry—the first case of its kind.
Over $25 million in crypto has been seized in the case, the U.S. Department of Justice (DOJ) said, and cops even created a fake digital token in order to catch alleged criminals in the act of manipulation.
The DOJ announced charges against Gotbit, ZM Quant, CLS Global, and MyTrade. The companies allegedly made wash trades with digital tokens to inflate their prices, attracting new investors in the process. Then, feds alleged on Wednesday, defendants sold their tokens—what is known as a “pump and dump” scheme.
“These are cases where an innovative technology—cryptocurrency—met a century-old scheme—the pump and dump,” Acting United States Attorney Joshua Levy said in a statement.
He added: “Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception.”
The DOJ 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, to manipulate the trading to make the trading numbers more appealing.
The DOJ added that it had hit Gotbit, its CEO, and two of its directors for perpetrating a similar scheme. Gotbit billed itself as a hedge fund and meme coin market maker. It previously argued in PR announcements that meme coins were a way to onboard new companies into the crypto space.
Meme coins are cryptocurrencies based on internet memes and jokes that often skyrocket quickly in value seemingly out of nowhere, only to disappear just as quickly.
One of the defendants in the case, Gotbit CEO Aleksei Andriunin, 26, bragged back in 2019 that he had “made a business of faking trade volumes at crypto exchanges.” Feds arrested the Russian-born defendant yesterday in Portugal and he now awaits extradition.
Feds alleged that another one of the companies, Saitama, provided would-be investors with a token and services that swelled to have a market cap of $7.5 billion. Those behind the crypto project, though, were allegedly actively manipulating the market for the Saitama token and “secretly selling their Saitama tokens for tens of millions in profits.”
In separate civil charges, the Securities and Exchange Commission alleged that Gotbit provides “on-demand market manipulation” by “generating fake, daily trading volume often in the millions of dollars by essentially trading crypto assets with itself.”
The Wall Street regulator said it was seeking permanent injunctions against Gotbit, Andriunin, and his team, along with disgorgement of all ill-gotten gains from the alleged unlawful conduct.
Additional reporting by André Beganski
Edited by Andrew Hayward
Editor's note: This story was updated after publication with additional details.