In a groundbreaking investigation, federal authorities have charged three cryptocurrency companies and 15 individuals with fraud and market manipulation schemes that rocked the digital currency world. The FBI, in a first-of-its-kind move, directed the creation of a new cryptocurrency token to catch fraudsters in action. The investigation culminated in four arrests, agreements by five individuals to plead guilty, and the seizure of over $25 million worth of cryptocurrency.
The companies involved—Gotbit, ZM Quant, and CLS Global—were accused of orchestrating complex “pump-and-dump” schemes, a notorious method used to artificially inflate the value of cryptocurrency tokens before cashing out at the expense of unsuspecting investors. Acting U.S. Attorney Joshua Levy described the case as an intersection of “new-age technology” and “old-school fraud.”
“This is a case where new-age technology, crypto, meets old-school fraud, in this case a ‘pump-and-dump’ scheme, which is as old as the stock markets,” Levy said at a press briefing. The FBI’s novel strategy in this case involved creating a cryptocurrency company, NexFundAI, and using it to uncover fraudulent activities.
The probe focused on fraudulent activity dating back to 2018, with charges revealing a coordinated effort by these companies and individuals to manipulate cryptocurrency markets. The firms and their leaders allegedly engaged in sham trades to inflate the trading volume of tokens artificially. These inflated tokens were then sold at exaggerated prices, leaving innocent investors holding worthless assets when the bubble burst.
The charged companies specialized in “market making,” a practice where entities provide liquidity for the trading of specific cryptocurrencies. In this case, market making served as a cover for their manipulation schemes.
Authorities alleged that Saitama, the largest company involved, had once reached a market value of $7.5 billion before its executives began manipulating its token prices and secretly offloading them for profit. Manpreet Kohli, the CEO of Saitama, was arrested in the United Kingdom on Monday. Other executives of Saitama, including three individuals who have already pleaded guilty, are facing charges as well.
The investigation into this cryptocurrency fraud case is notable for its use of an FBI-directed cryptocurrency token called NexFundAI. This token, placed on the Ethereum blockchain, was at the heart of a sting operation that exposed how easily cryptocurrency markets could be manipulated.
Prosecutors revealed that companies such as ZM Quant, CLS Global, and MyTrade were involved in the manipulation of the NexFundAI token. These companies, which operate as market makers, accepted deals to manipulate the value and trading volume of the token. However, under the FBI’s careful monitoring, the NexFundAI token’s trading activity was controlled to ensure that no real retail investors were harmed in the process.
The scheme’s exposure provided investigators with invaluable insights into how cryptocurrency market makers exploit tokens for profit. The U.S. Securities and Exchange Commission (SEC) has also filed related civil suits, signaling that this case could have broad-reaching implications for how cryptocurrency is regulated.
One of the key players in this fraud was Gotbit, a Russian and Portuguese-based cryptocurrency market maker. Gotbit’s CEO, Aleksei Andriunin, was among those arrested. Andriunin was detained in Portugal on Tuesday, while two other employees based in Russia were also charged.
Gotbit allegedly engaged in “wash trading,” a manipulative practice where a party simultaneously buys and sells the same asset to create an illusion of increased trading volume. Wash trading creates the false appearance of demand for a cryptocurrency, enticing new investors to join the market. Between 2018 and 2024, Gotbit offered these services to various cryptocurrency projects, artificially boosting their visibility and perceived legitimacy in the marketplace.
According to prosecutors, Gotbit’s practices were integral to manipulating market activity and defrauding investors. The company’s engagement in wash trading highlights the vulnerability of cryptocurrency markets, which operate with far fewer regulations than traditional financial markets.
Alongside Gotbit, several other individuals and firms are facing charges for their roles in the widespread fraud.
Liu Zhou, the founder of MyTrade, a Hong Kong-based market maker, who has agreed to plead guilty as part of the investigation.
Riqui Liu of the United Kingdom and Hong Kong, and Baijun Ou of Hong Kong, both employees of ZM Quant, a market-making firm heavily involved in manipulating the NexFundAI token.
Andrey Zhorzhes, an employee of CLS Global, based in the United Arab Emirates.
All of these individuals are accused of participating in market manipulation schemes designed to boost the price and trading volume of cryptocurrency tokens, with devastating consequences for everyday investors.
While the market-making companies were key players in the fraudulent schemes, individual cryptocurrency companies also engaged in manipulation and deceit. Two individuals—Michael Thompson of Virginia and Bradley Beatty of Florida—were specifically charged for their roles in promoting fraudulent cryptocurrency projects.
Thompson was involved in VZZN, a cryptocurrency company founded by a former employee of Saitama, while Beatty ran a company called Lillian Finance. Both men allegedly used fraudulent marketing techniques to mislead investors about the value and potential of their respective cryptocurrencies. Beatty, in particular, was accused of promoting Lillian Finance through false promises and deceptive claims, luring investors into a losing proposition.
The scope of this case sheds light on broader issues within the cryptocurrency market, where regulation is still developing, and market manipulation remains rampant. The decentralized and often opaque nature of cryptocurrency trading platforms has created fertile ground for fraudsters.
The U.S. Securities and Exchange Commission (SEC) has been ramping up its efforts to regulate the industry, but the fast-evolving nature of blockchain technology and cryptocurrencies makes enforcement difficult. Without a centralized authority to oversee all transactions, market makers and cryptocurrency issuers have more room to engage in manipulative practices.
This investigation underscores the need for stricter oversight in the cryptocurrency space, as it exposes how widespread manipulation can harm unsuspecting investors. The FBI’s use of a new digital token to investigate these schemes represents a novel approach to combating crypto fraud, but it also reveals just how deeply embedded fraud has become in certain parts of the industry.
As the fallout from this case continues, the cryptocurrency industry will likely face increased scrutiny from both regulatory bodies and law enforcement. The arrests and guilty pleas obtained in this investigation signal a warning to other market players who may be engaging in similar fraudulent activities.
For investors, the case is a sobering reminder of the risks inherent in the cryptocurrency space, particularly with the rise of unregulated tokens and decentralized platforms. While blockchain technology offers immense potential, its anonymity and lack of oversight make it a tempting target for bad actors.
In light of these revelations, federal authorities may push for new regulations to combat market manipulation in the cryptocurrency industry. The SEC has already taken steps to increase transparency and accountability in crypto trading, but the agency will likely need more resources and stronger legal frameworks to fully address the problem.
At the same time, this case may prompt cryptocurrency exchanges to tighten their own rules and oversight procedures. Many exchanges have been criticized for their lax approaches to listing new tokens, with some even accused of turning a blind eye to manipulation tactics.
