UAE-based CLS Global fined nearly half a million dollars for manipulating cryptocurrency markets through fake FBI tokens.

A United Arab Emirates (UAE)-based cryptocurrency financial services company has pleaded guilty to facilitating market manipulation involving a token created by the U.S. Federal Bureau of Investigation (FBI), marking a turning point in the fight against financial crime in the cryptocurrency sector.

On January 21, CLS Global pleaded guilty to two charges: fraudulent manipulation of cryptocurrency trading volume and wire fraud. As part of the plea agreement, CLS Global will pay a fine of $428,059 and forfeit all funds held in accounts on the Binance and KuCoin cryptocurrency exchanges. This is the result of a lengthy investigation that stemmed from a sophisticated FBI sting operation.

FBI's "mouse trap" operation

The case began in September 2022, when CLS Global fell for an artificial intelligence (AI)-related token called NexFundAI (NEXF), which was actually created by the FBI to attract people to participate in cryptocurrency fraud, especially “pump-and-dump” schemes.

Source: Massachusetts US Attorney's Office

FBI agents posed as market manipulators and approached CLS Global, asking for its assistance in manipulating the trading volume of the NEXF token. Their goal was to create the illusion of excitement and growth for the token, thereby luring unsuspecting investors. CLS Global agreed to participate in the scheme, conducting “wash trading” transactions to create fake trading volume.

Under the plea agreement, CLS admitted to providing services to the NexFundAI token, including “wash trading,” in order to defraud investors into purchasing the token. The agreement also bars CLS from engaging in any cryptocurrency transactions on U.S. investor trading platforms for three years. CLS will be required to submit annual certifications to the U.S. Securities and Exchange Commission (SEC) to ensure compliance with the regulations.

CLS Global can no longer provide its services to anyone in the US under the plea agreement. Source: CourtListener

In addition to the Justice Department, the U.S. Securities and Exchange Commission (SEC) also filed separate civil charges against CLS in October 2022, accusing it of violating securities laws. The U.S. Attorney's Office said any forfeiture or fine from CLS Global will be credited to the settlement with the SEC and other agencies.

The CLS Global case is part of an investigation by the US Department of Justice. Last October, the Justice Department announced 18 individuals and another company, MyTrade MM, were also accused of providing services to the NexFundAI token.