In an unprecedented move, the FBI has launched its own cryptocurrency, dubbed NexFundAI, as part of its strategy to combat market manipulation in the crypto space.
On Wednesday, a judge revealed a wide-ranging criminal case brought by the Department of Justice against 18 individuals and companies accused of manipulating the crypto market and artificially boosting tokens. According to the complaint, the operation targeted one crypto firm with a multi-billion-dollar market value, and relied on a ruse involving a new cryptocurrency spun up by the FBI. This strategic initiative has successfully dismantled a sophisticated fraud network within the sector.
Undercover Crypto Operation Targets Manipulators
The FBI initiated this operation after being alerted by the SEC to suspicious activities involving the cryptocurrency firm Saitama. In response, the agency created NexFundAI, a simulated cryptocurrency, to penetrate and monitor the manipulative practices of “market makers” who were inflating token prices using techniques like wash trading.
Wash trading is a common market manipulation technique in the crypto industry that involves fake buying and selling orders to create the illusion of demand. Analysts estimate that up to 50% of trading volume on some exchanges may be inflated.
Among those implicated were crypto firms such as Saitama, Robo Inu, VZZN, and Lilian Finance, as well as market-making outfits like Gotbit, ZM Quant, CLS Global, and MyTradeMM.
To catch the perpetrators, the FBI arranged meetings with these so-called “market makers,” offering fraudulent market manipulation services using NexFundAI. The fraudsters were exposed when they agreed to manipulate the price of NexFundAI in exchange for compensation. While agreeing to an in-person meeting in September, he asked for an upfront payment of $2000.
As late as last week, the market maker's bot were still making millions of dollars worth of wash trades before being deactivated at the request of law enforcement.
Major Legal Action and Industry Impact
The DOJ's case targets three market makers offered wash trading services for payment, with one defendant labeling himself the "mastermind". He used bots to inflate trading volume. This marks the Department of Justice's first criminal case targeting crypto market manipulation by financial firms.
Several of the defendants operated internationally, including in Portugal and Russia, and five have already pleaded guilty and agreed to plead guilty. Along with the DOJ indictment, the Securities and Exchange commission also filed civil complaints alleging securities law violation against the market-making operations.
The FBI’s introduction of NexFundAI marks a groundbreaking approach to tackling widespread market manipulation in the crypto industry. This decisive action establishes a powerful precedent for enforcing accountability and transparency in the evolving digital asset space.
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