US Charges Three Firms, 15 People With Cryptocurrency Fraud

Three cryptocurrency companies and 15 people have been charged with engaging in widespread fraud and market manipulation following an investigation in which the FBI for the first time directed the creation of a new digital token to help authorities ferret out crime.

Federal prosecutors in Boston charged the firms Gotbit, ZM Quant, CLS Global and the leaders and employees of those and other companies in a takedown that has led to four arrests, agreements by five people to plead guilty and the seizure of over $25 million (roughly Rs. 209 crore) worth of cryptocurrency.

Acting US Attorney Joshua Levy said the defendants engaged in sham trades to artificially inflate the trading volume of various cryptocurrency tokens before selling them off, "leaving innocent investors holding the bag."

"This is a case where new age technology, crypto, meets an old school fraud, in this case a 'pump and dump' scheme, which is as old as the stock markets," Levy told reporters.

As part of the investigation, the FBI directed the creation of a cryptocurrency company, NexFundAI, which had a token on the Ethereum blockchain that prosecutors said ZM Quant, CLS Global and another company, MyTrade, agreed to help manipulate.

Authorities said that token was traded but that they carefully monitored to minimize the risk retail investors might buy it before disabling trading. The US Securities and Exchange Commission filed related civil cases as well.

Prosecutors said that Saitama, the largest of the companies involved, at one point had a market value of $7.5 billion (roughly Rs. 62,971 crore), after its leadership began manipulating trading of its tokens and secretly sold them.

Its chief executive, Manpreet Kohli, was arrested on Monday in the United Kingdom. Five other current or former employees were also charged, and three have pleaded guilty.

Others charged were Aleksei Andriunin, CEO of Gotbit, a cryptocurrency "market maker" who lived in Russia and Portugal. He was arrested in Portugal on Tuesday. Two of his company's employees in Russia were also charged.

 Prosecutors said that from 2018 to 2024, Gotbit engaged in "wash trading," a form of sham trading, and market manipulation on behalf of several cryptocurrency clients to help artificially inflate trading volume for their tokens.

Also charged were four other individuals who worked at cryptocurrency "market makers" that prosecutors said advertised market manipulation services to clients.

They are Liu Zhou, the founder of market maker MyTrade, who according to court papers has agreed to plead guilty; Riqui Liu of the United Kingdom and Hong Kong and Baijun Ou of Hong Kong, who both worked at ZM Quant; and Andrey Zhorzhes of the United Arab Emirates, an employee of CLS Global.

They could not be immediately reached for comment.

Others charged were Michael Thompson of Virginia, who worked at a cryptocurrency company called VZZN founded by a former Saitama employee, and Bradley Beatty of Florida, who prosecutors said fraudulently promoted his crypto company, Lillian Finance.

© Thomson Reuters 2024