FBI Creates Its Own Token to Indict Four Market Makers for Market Manipulation

US prosecutors have indicted three financial firms and fifteen individuals for market manipulation after the FBI created its own token to catch bad actors.

According to a press release by the US Attorney’s Office on Wednesday, the charged entities were involved in wash trading and inflicting losses on retail investors. For context, wash trading is an internal act of buying and selling an underlying token to boost trading volume and investor interest.

Notably, federal prosecutors emphasized that it was the first criminal indictment against financial entities for crypto fraud and market manipulation.

US Prosecutors Clampdown Bad Actors

Per the press release, the market makers involved included Gotbit, ZM Quant, CLS Global, and MyTrade. The Boston division of the US Justice Department claimed these financial firms carried out a years-long practice of investor fraud and market manipulation.

The prosecutors noted that they have made a few arrests, and five entities have agreed to plead guilty. Also, the agency recovered $25 million worth of cryptocurrencies from the companies in question and deactivated the trading bots the companies used to wash trade over 60 different tokens.

Notably, the agency arrested and charged the CEO of Gotbit and MyTrade, as well as two employees of ZM Quant and one from CLS Global. Furthermore, authorities arrested and indicted the founder of the Saitama project for contracting the market makers to artificially boost its token.

FBI, SEC Role in Investigation

The report shows the investigation resumed when the SEC reported suspected market manipulation activity on the Saitama crypto project. Notably, the company’s market valuation was $7.5 billion at its peak.

The Federal Bureau of Investigation began investigating the company and created a token called NextFundAI. The intelligence department used the Ethereum-based token to attract and indict the fake market makers who promised to manipulate the cryptocurrency.

Notably, the SEC has filed a civil charge against ZM Quant, Gotbit, CLS Global, and nine other individuals. The regulator claims they defrauded investors and sold unregistered securities.

Meanwhile, the FBI’s NextFundAI token tactics have sparked a series of reactions among the crypto community. Among them is a tweet from on-chain forensics analyst TruthLab that the FBI-tied wallet had deep connections with some major tokens.

The analyst revealed that the FBI-tied wallet, which the agency doxxed during the launch of NextFundAI, acquired SHIB before the Ethereum co-founder burned 410 trillion SHIB in May 2021 and owned significant assets like Bored Ape and Doodles. The wallet procured billions of SHIB from May 13 to 16, 2021, before the Buterin burn.

TruthLab also alleged that the recent charges may have been a cautious approach by “a cartel” to protect its activities. He asserted that the FBI may have been on the toes of certain influential persons, and they disclosed these wallets to fight back.