In a press release issued on October 9 by the U.S. Attorney’s Office for the District of Massachusetts, federal prosecutors announced criminal charges against 18 individuals and entities for engaging in widespread fraud and market manipulation within cryptocurrency markets. These charges mark the first-ever criminal case targeting market manipulation and “wash trading” in the digital asset space. The defendants include leaders from four cryptocurrency token issuers — Saitama, Robo Inu, VZZN, and Lillian Finance — and four crypto market makers — ZM Quant, CLS Global, MyTrade, and Gotbit.
According to prosecutors, the accused allegedly engaged in wash trading, a practice where fake trades were executed to create the illusion of high trading activity. This deceptive tactic falsely boosted the value of various cryptocurrencies, attracting unsuspecting investors. The defendants are alleged to have then sold their tokens at artificially inflated prices in what is described as a classic “pump and dump” scheme.
Over $25 million in cryptocurrency has been seized, and numerous trading bots responsible for executing wash trades have been deactivated. Four defendants have already pleaded guilty; others were arrested in Texas, the U.K., and Portugal.
The FBI conducted an undercover operation called “Operation Token Mirrors,” in which agents created their own cryptocurrency token and company to infiltrate and investigate fraudulent activity within the crypto market. This sting operation allowed investigators to uncover how specific token issuers and market makers collaborated to artificially inflate token prices.
More than $25 million in cryptocurrency was seized, and authorities deactivated trading bots responsible for millions of dollars in wash trades involving around 60 different cryptocurrencies.
Acting United States Attorney Joshua Levy had this to say:
“This investigation, the first of its kind, identified numerous fraudsters in the cryptocurrency industry. Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception. These are cases where an innovative technology – cryptocurrency – met a century-old scheme – the pump and dump. The message today is if you make false statements to trick investors, that’s fraud. Period. Our Office will aggressively pursue fraud, including in the cryptocurrency industry,” said Acting United States Attorney Joshua Levy. “These charges are also a stark reminder of how vigilant online investors must be and that doing your homework before diving into the digital frontier is critical. People considering making investments in the cryptocurrency industry should understand how these scams work so that they can protect themselves.“
And Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division, added:
“What the FBI uncovered in this case is essentially a new twist to old-school financial crime. ‘Operation Token Mirrors’ targeted nefarious token developers, promoters, and market makers in the crypto space. What we uncovered has resulted in charges against the leadership of four cryptocurrency companies and four crypto ‘market makers’ and their employees, who are accused of spearheading a sophisticated trading scheme that allegedly bilked honest investors out of millions of dollars. The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and bring these alleged fraudsters to justice.”
The Securities and Exchange Commission (SEC) has also filed civil complaints related to the fraudulent activities uncovered in this investigation.
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