Compiled | Wu Blockchain
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Eighteen individuals and entities have been charged for widespread fraud and manipulation in the crypto-currency markets. The U.S. Attorney's Office in Boston announced charges against four crypto-currency companies, four crypto-currency financial services firms (i.e., "market makers"), and their employees.
Four defendants have pleaded guilty, another defendant has agreed to plead guilty, and three more defendants were arrested this week in Texas, the United Kingdom, and Portugal. Over $25 million in crypto-currency has been seized, and multiple trading bots responsible for hundreds of millions of dollars in "wash trading" across hundreds of crypto-currencies have been shut down.
According to the indictments, the defendants created crypto-currency companies and made false representations about their crypto-currencies ("tokens"), and engaged in sham trading ("wash trading") to create the false appearance of trading activity, in order to make the tokens appear to be good investment choices. These deceptive tactics allegedly attracted new investors and purchasers, causing the token prices to rise. The defendants then allegedly sold their tokens at the artificially inflated prices, a practice known as "pump and dump." One of the largest crypto-currency companies, Saitama, had a market capitalization that once reached billions of dollars.
These crypto-currency companies also hired financial services firms ("market makers") to conduct wash trading in exchange for compensation. As one cooperating market maker defendant described to potential clients, the "target in the secondary market" was to find "other buyers from the community, people you don't know or don't care about," because "we have to make [those other buyers] lose money for us to profit."
Three market makers — ZM Quant, CLS Global, and MyTrade, and their employees, are charged with conducting or conspiring to conduct wash trading on behalf of the crypto-currency company NexFundAI, which was created by law enforcement for investigative purposes. The fourth market maker, Gotbit, its CEO, and two directors are also charged with implementing similar schemes.
"This investigation is the first of its kind, identifying widespread fraud in the crypto-currency industry. Wash trading has long been prohibited in financial markets, and the crypto-currency markets are no exception. These cases demonstrate what happens when an innovative technology — crypto-currencies — intersects with a century-old fraud scheme — pump-and-dump. The message today is: if you defraud investors through false representations, that is fraud. Our office will aggressively pursue fraud, including in the crypto-currency industry," said Acting U.S. Attorney Joshua Levy. "These charges also serve as a warning to online investors to remain vigilant and do their due diligence before venturing into the digital frontier. People considering investing in the crypto-currency industry should understand how these scams work in order to protect themselves."
"The FBI has uncovered a new variant of traditional financial crime in this case. Operation Token Mirrors targeted illicit token developers, promoters, and market makers in the crypto-currency space. The criminal conduct we have exposed has led to the indictment of the leadership of four crypto-currency companies, four crypto-currency 'market makers' and their employees, who are alleged to have orchestrated a complex trading scheme to defraud legitimate investors, causing millions in losses," said FBI Boston Division Special Agent in Charge Jodi Cohen. "The FBI took unprecedented steps to create its own crypto-currency token and company in order to identify, disrupt, and bring these alleged fraudsters to justice."
The U.S. Securities and Exchange Commission (SEC) has also filed civil actions against Gotbit, CLS, ZM Quant, Saitama, and Robo Inu for related conduct, alleging violations of securities laws. Significant assistance in the investigation was provided by the FBI's Legal Attaché Offices (Madrid and London), the Polícia Judiciária of Portugal, the European Network of Fugitive Active Search Teams (ENFAST), the National Extradition Unit of the National Crime Agency of the United Kingdom, the IRS Criminal Investigation Boston Field Office, and the National Crypto-Currency Enforcement Team of the Criminal Division's Computer Crime and Intellectual Property Section.
The announcement was made by Acting U.S. Attorney Joshua S. Levy and FBI Boston Division Special Agent in Charge Jodi Cohen. Assistant U.S. Attorneys Christopher J. Markham and David M. Holcomb of the Securities, Financial, and Cyber Fraud Unit are prosecuting the cases.
The details contained in the indictments are allegations. Unless proven guilty beyond a reasonable doubt in a court of law, the defendants are presumed innocent.
The following individuals and entities have been charged in the U.S. District Court for the District of Massachusetts:
Aleksei Andriunin, Fedor Kedrov, Qawi Jalili, Gotbit Consulting LLC (Gotbit) — According to court documents, Gotbit was a well-known "market maker" in the crypto-currency industry. Aleksei Andriunin (26, Russia and Portugal) is the CEO and founder of Gotbit. Andriunin was arrested in Portugal on October 8, 2024 and is awaiting extradition. Fedor Kedrov (Russia) is the head trader at Gotbit. Qawi Jalili (Russia) is the head of sales at Gotbit. Gotbit, Kedrov, and Jalili are charged with wire fraud, conspiracy to commit market manipulation, and wire fraud. Andriunin is also separately charged in a criminal indictment with wire fraud, conspiracy to commit market manipulation, wire fraud, and conspiracy to commit money laundering. As alleged, from 2018 to 2024, Gotbit provided market manipulation and wash trading services to multiple crypto-currency companies, including U.S.-based companies. Gotbit is alleged to have conducted wash trades worth hundreds of millions of dollars on behalf of clients and earned tens of millions of dollars in illicit proceeds from these unlawful services. In an online interview published in 2019, Andriunin described how he developed code for wash trading to artificially inflate crypto-currency trading volumes. Andriunin allegedly kept spreadsheets documenting Gotbit's market manipulation activities, including comparing the "fake trading volume" generated through wash trading to the "real market volume." Gotbit employees, including Jalili and Kedrov, are alleged to have pitched these wash trading strategies and how to avoid detection by regulators to potential clients. Jalili and Kedrov also provided these services for multiple crypto-currencies, including Saitama and Robo Inu.
Riqui Liu, Baijun Ou, ZM Quant Investment LTD (ZM Quant) — ZM Quant was a "market maker" in the crypto-currency industry that allegedly provided illegal market manipulation services to clients. Riqui Liu (26, UK and Hong Kong) was an employee of ZM Quant. Baijun Ou (32, Hong Kong) was also an employee of ZM Quant. ZM Quant, Liu, and Ou are charged in a superseding indictment with wire fraud and conspiracy to commit market manipulation and wire fraud.
According to court documents, ZM Quant allegedly promoted a "trading bot" that could "manufacture trading volume." ZM Quant employees are alleged to have discussed these illegal services with clients via Telegram messages and video conferences. For example, the indictment alleges that during a March 2024 video conference, Liu and Ou detailed how ZM Quant could trade "maybe ten times or twenty times per minute" to "increase trading volume" and "push up the price." Liu and Ou also described how ZM Quant used multiple trading wallets to make the trading appear "less artificial." ZM Quant is also alleged to have provided market manipulation services to multiple crypto-currency companies, including Saitama and NexFundAI.
Andrey Zhorzhes, CLS Global FZC, LLC (CLS) — CLS was a "market maker" in the crypto-currency industry that allegedly provided illegal market manipulation services to clients. Andrey Zhorzhes, from the United Arab Emirates, was an employee of CLS. CLS and Zhorzhes are charged with wire fraud and conspiracy to commit market manipulation and wire fraud.
According to reports, Zhorzhes described to potential clients how the CLS algorithm generates trading volume across multiple cryptocurrency exchanges, as follows:
• "We have an algorithm... basically self-trading, buying and selling."
• "The idea of generating trading volume is... to make the token look organic, real, and get people interested in the trading."
• "It's very hard to track... we've done this for many clients."
• "I know this is wash trading, and I know people may not be happy about it."
According to reports, Zhorzhes and other CLS traders provided these market manipulation services to NexFundAI.
Liu Zhou, MyTrade MM — — MyTrade MM is another "market maker" in the cryptocurrency industry, which allegedly provided illegal market manipulation services to clients, including "pump and dump" advisory services and "wash trading" conducted by "bots". Liu Zhou (39, a citizen of China and Canada) is the founder of MyTrade MM. Liu Zhou was charged and has agreed to plead guilty to conspiracy to commit market manipulation and wire fraud.
MyTrade MM's clients can access these services through a dashboard on the MyTrade MM website, where they can specify the daily wash trading volume required in designated cryptocurrency exchanges. MyTrade MM's dashboard describes this service as "trading volume support" and allows for millions of wash trades per day for each client's cryptocurrency. For example:
In a conversation with an alleged promoter of NexFundAI, Liu Zhou claimed that MyTrade MM was superior to "CLS" and "Gotbit" because those market makers "keep clients in the dark" and "control the pump and dump", meaning "they can easily engage in insider trading". Liu Zhou also allegedly described various purposes of wash trading, including showing "continuous trading activity every hour", generating sufficient trading volume to get cryptocurrency exchanges to waive listing fees, and implementing "pump and dump" schemes. According to court documents, Liu Zhou further described that the "target in the secondary market" is to find "other buyers from the community, people you don't know or don't care about", because "we have to make [those other buyers] lose money in order to profit".
Manpreet Kohli, Haroon Mohsini, Nam Tran, Max Hernandez, Russell Armand, Vy Pham, Saitama LLC (Saitama) — — Saitama is a cryptocurrency company that was initially incorporated in Massachusetts in August 2021.
Manpreet Kohli, 43, from the UK, is the CEO of Saitama. Kohli was arrested in the UK on October 7, 2024 and is awaiting extradition. Haroon Mohsini, 37, from Texas, also worked at Saitama. Mohsini was arrested in the Southern District of Texas on October 7, 2024. Nam Tran, 32, from Vietnam, worked at Saitama and is currently in Vietnam. Kohli, Mohsini, and Tran were all charged in a superseding indictment with wire fraud, market manipulation, and conspiracy to commit wire fraud, market manipulation, and unlicensed money transmission. Max Hernandez, 36, from Massachusetts, and Russell Armand, 42, from Texas, also worked at Saitama and were separately charged and have both pleaded guilty to market manipulation, conspiracy to commit wire fraud, and unlicensed money transmission. Vy Pham, 32, from California, was also charged in another cryptocurrency company's case but admitted to certain conduct related to Saitama in a plea agreement.
Saitama allegedly claimed it would create a suite of products that could be used in conjunction with its token, and at its peak, claimed a market capitalization of $7.5 billion. Saitama's leadership made various false public statements, including that its business plan had been reviewed by regulatory authorities, that its leadership had not sold their Saitama tokens, and that Saitama's token code was designed to prevent market manipulation. According to the indictment, Saitama's leadership was actively manipulating the Saitama token market and secretly selling their Saitama tokens, profiting tens of millions of dollars.
Saitama's market manipulation activities began around July 2021, when its leadership coordinated a series of small buy transactions spread across multiple cryptocurrency wallets. These transactions were coordinated via Telegram, with Armand explaining the purpose was to "create the illusion of a lot of buying and new holders" in order to "stimulate people to buy more... we want these small buy orders to look like more buyers. That's the plan." Saitama's leadership confirmed these buy activities and discussed how to successfully induce others to purchase Saitama cryptocurrency, exchanging "PUMP IT" emojis and GIFs along the way:
Subsequently, Saitama's leadership paid fees to multiple market makers to conduct wash trading of the Saitama cryptocurrency on cryptocurrency exchanges including BitMart, LBank, and XT.com. The alleged market makers paid by Saitama included ZM Quant and Gotbit.
Robo Inu Finance (Robo Inu) — — Robo Inu is a cryptocurrency company founded by Vy Pham after she left Saitama in 2021. Pham has been charged and agreed to plead guilty to conspiracy to commit market manipulation, conspiracy to commit wire fraud, and unlicensed money transmission. Pham incorporated and promoted Robo Inu in the US. Similar to Saitama, Robo Inu claimed it would create a suite of products that could be used in conjunction with its cryptocurrency. Around 2022, Robo Inu paid fees to Gotbit to artificially inflate the trading volume of the Robo Inu token through wash trading on exchanges like BitMart.
Michael Thompson, VZZN — — VZZN is a cryptocurrency company founded by Armand after he left Saitama in 2023. Michael Thompson, 50, from Virginia, also worked at VZZN. Like Armand, Thompson was charged and pleaded guilty to conspiracy to commit market manipulation. VZZN allegedly claimed to be a video streaming service that could be used in conjunction with the VZZN token. While promoting this service, Armand and Thompson also made misleading public statements about VZZN and artificially inflated the trading volume of the VZZN token through wash trading.
Bradley Beatty, Lillian Finance LLC (Lillian Finance) — — Lillian Finance is a cryptocurrency company founded by 48-year-old Florida resident Bradley Beatty. Beatty was charged with wire fraud. Lillian Finance allegedly claimed to use blockchain technology for the healthcare industry and would use a portion of the proceeds from token sales for charitable purposes. Beatty made a series of false statements to attract investors, such as claiming he was a defense contractor and had testified before Congress on cryptocurrency issues. Beatty then obtained hundreds of thousands of dollars in proceeds from retail sales of Lillian Finance tokens and misappropriated portions of Lillian Finance's profits that were supposed to be used for charity.
The maximum sentence for market manipulation is 20 years in prison, up to 3 years of supervised release, a fine of up to $5 million or twice the gross gain or loss, and forfeiture of illicit proceeds. The maximum sentence for wire fraud is 20 years in prison, up to 3 years of supervised release, a fine of up to $250,000 or twice the gross gain or loss, and forfeiture of illicit proceeds and restitution. The maximum sentence for conspiracy to commit wire fraud, market manipulation, and/or unlicensed money transmission is 5 years in prison, up to 3 years of supervised release, a fine of up to $250,000 or twice the gross gain or loss, and forfeiture of illicit proceeds and restitution. The maximum sentence for conspiracy to commit money laundering is 20 years in prison, up to 3 years of supervised release, a fine of up to $500,000 or twice the value of the property involved, whichever is greater, and forfeiture of illicit proceeds. Sentences are determined by the federal district court judge based on the U.S. Sentencing Guidelines and applicable laws.
