Federal prosecutors in Boston have filed “the first-ever criminal charges against financial firms for crypto market manipulation and wash trading.”

Eighteen individuals and entities are accused of large-scale fraud and manipulation of the cryptocurrency market, including the heads of market making companies Gotbit, ZM Quant, CLS Global, MyTrad and several crypto projects.

Four defendants pleaded guilty, and one other agreed to do so. Three were arrested in Texas, the UK and Portugal. More than $25 million in cryptocurrency was seized, and trading bots responsible for fictitious trading for about 60 digital assets were deactivated.

On October 8, 2024, the 26-year-old founder and CEO of the well-known crypto market maker Gotbit, Alexey Andryunin, was arrested in Portugal and is awaiting extradition. The company's top managers, Kavi Jalili and Fedor Kedrov, are also accused.

The firm is alleged to have provided market manipulation and wash trading services to multiple crypto companies, including those based in the US, from 2018 to 2024.

In 2019, Andryunin publicly spoke about his services: for a certain fee, the company is ready to inflate the trading volume.

According to the indictment, the defendants artificially inflated trading activity to create the appearance of active trading activity, which “helped position the tokens as good investments.” These deceptive practices allegedly attracted new buyers, which caused the asset prices to rise. The defendants then sold their tokens at high prices.

Crypto companies hired market makers to conduct fictitious trading for a fee. The goal was to find other buyers and trick them into buying tokens at inflated prices, according to one of the defendants who pleaded guilty.

The list of manipulated tokens included Robo Inu, VZZN and SAITAMA.

“This investigation, the first of its kind, has exposed numerous fraudulent schemes in the cryptocurrency industry. Wash trading has long been illegal in financial markets, and cryptocurrency is no exception. These are cases where an innovative technology — cryptocurrency — meets a century-old scheme — Pump & Dump. Today, we are declaring that if you make false statements to deceive investors, it is fraud. Period. Our office will aggressively pursue fraud, including in the cryptocurrency industry,” said Acting United States Attorney Joshua Levy.

The market manipulation charge carries a penalty of up to 20 years in prison, up to three years of supervised release, a fine of up to $5 million or twice the gross gain/loss of the crime, and forfeiture of property. Several other charges carry similar penalties.

The FBI has created its own token

During the investigation, Federal Bureau of Investigation (FBI) agents created an Ethereum-based token called NextFundAI. It was used to “identify, disrupt, and prosecute suspected fraudsters,” according to a press release.

The asset is described as a security, according to court documents. An FBI spokesman said there was limited trading activity, without providing details on whether the agency worked with any crypto companies on the project.

NextFundAI was positioned as a token that “directed funds into early-stage AI projects, stimulating innovation and generating profits.” 80% of the proceeds from investments were promised to be distributed among holders of the asset in USDT

Description of the NextFundAI token on the project website. Data: NextFundAI website.

Lookonchain experts found that the wallet that funded the creation of NexFundAI also manipulated the SAITAMA token involved in the case. It earned more than $11 million from this.

SEC Charge

In parallel with the Boston prosecutor's office, the U.S. Securities and Exchange Commission has brought fraud charges against three companies "posing as market makers" and nine individuals for participating in schemes to manipulate markets in various cryptoassets.

According to the indictment, Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vi Pham hired ZM Quant and Gotbit to engage in market manipulation, which includes creating artificial trading volume and manipulating crypto asset prices. CLS Global engaged in similar activities.

The regulator is seeking injunctions, restitution of illegally obtained profits with interest, and civil penalties against the defendants.

What market participants should expect

In a comment for ForkLog, Exved CEO Sergei Mendeleev noted that “everyone who deals with such stories should be worried.”

"[…] Pump & Dump services are provided by many exchanges and funds. In fact, this is one of the foundations of the business. Have you ever been surprised by the number of coins and tokens that no one needs? In fact, this is a legalized casino without taxes and regulators, and even with easy entry without strict AML with the ability to play with money hidden from the state. This will not affect legal white crypto, but I would advise those waiting for a new altseason to reconsider their views. It may be like with NFT - the series will not be renewed," he noted.

As for the potential punishment for the accused, the sentences could be serious.

"Of course, the guys got themselves into a very bad situation and the FBI prepared this operation for a long time and thoroughly (they issued their own token, they had to think of that!) In general, you have to understand that in America, insider trading, as well as market manipulation, is a crime almost more serious than drug trafficking. And the fight against so-called white-collar crime is put on stream there. If the case goes to a jury trial, the sentences will be huge [...]," the expert added.

The founder of the legal company GMT Legal, Andrey Tugarin, noted the high probability of Gotbit being held liable.

“[…] There is a category of professional market makers who operate legally, and there are speculative ones who influence the market in their own interests and violate the law […]. Speculative market makers, who most often work on decentralized platforms, manipulate the market, which is a crime. In the case of Gotbit, the likelihood of being held accountable is quite high, since they acted in their own interests […].”, he noted.

Let us recall that in June Gotbit dropped the rate of the meme token WATER by 70% and wrote about it in X.

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