Author: Nancy, PANews
Market makers, recognized as important liquidity providers in the market, have considerable influence over market prices, especially in the crypto space where they hold the "power of life and death" over altcoins. Recently, U.S. regulators have teamed up to lure several market makers, including Gotbit, through sting operations, bringing charges of market manipulation and fraud, marking the first case of its kind.
Multiple Market Makers and Employees Charged, Over $25 Million in Cryptocurrency Seized
On October 9, the U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Department of Justice (DOJ) announced a joint indictment against eighteen individuals and entities for large-scale fraud and manipulation in the crypto market, including Gotbit Consulting, ZM Quant Investment, CLS Global, and Saitama.
Court documents reveal that these institutions secretly provided wash trading services to crypto projects, exaggerating trading volumes to create a false impression of trading activity to attract investors, thereby selling tokens at inflated prices. The largest manipulator among them was Saitama, which once reached a market value of several billion dollars.
Among them, Gotbit is a market maker heavily involved in the MEME sector, participating in MEME projects such as BONK, ANALOS, DUKO, PENG, and SOLAMA. However, due to multiple collaborative projects being rug pulls, Gotbit has also faced scrutiny. In fact, Gotbit's founder, Alexey Andryunin, stated in an interview with Coindesk that the platform used market manipulation as a means of livelihood and described how they developed code to artificially inflate crypto trading volumes while avoiding detection. In that report, Andryunin claimed that Gotbit's market-making services could boost a token's "trading volume" to a level sufficient for listing on CoinMarketCap, even ranking between 300 and 500. However, Andryunin also admitted, "Gotbit's business is not registered in any jurisdiction and is not entirely ethical; doing what we do now on Nasdaq would constitute financial crime." Currently, Alexey Andryunin is facing charges of wire fraud, conspiracy to manipulate the market, wire fraud, and conspiracy to launder money.
ZM Quant claims to be a trading bot that can "create trading volume," providing market manipulation services for Saitama and NexFundAI. The indictment reveals that ZM Quant discussed these illegal services with clients via Telegram messages and video conferences, such as how to "possibly trade ten or twenty times per minute" to increase trading volume and raise prices, as well as how to use multiple trading wallets to avoid detection of the trades being too artificial.
CLS is also charged with wire fraud and conspiracy to manipulate the market and wire fraud. CLS allowed each client's cryptocurrency to conduct millions of dollars in false trades daily, enabling these tokens to bypass exchange listing fees and inflate sales.
Saitama claimed that its market value peaked at $7.5 billion, with its leadership actively manipulating the market through the release of various false public statements and secretly selling, reaping tens of millions of dollars in profits. Saitama's market manipulation activities began in 2021 when the project created the illusion of large purchases and new holders by making small purchases of tokens through multiple crypto wallets, stimulating investor buying, and subsequently hiring ZM Quant and Gotbit for wash trading on exchanges.
In this case, over $25 million in cryptocurrency has been seized, and multiple trading bots responsible for conducting millions of dollars in wash trading for about 60 different cryptocurrencies have also been disabled.
FBI Issues Token Sting Operation, But Accused of Copyright Infringement
It is worth mentioning that the crackdown on these crypto market makers was primarily due to a sting operation by the FBI.
Reportedly, in the "Token Mirror Operation," the FBI created a token named NexFundAI on Ethereum and a crypto company called NexFundAI, using the identity of this company and token to meet with market makers to discuss cooperation, including ZM Quant, CLS Global, and MyTrade, all of whom agreed to assist in manipulating the token.
Although the token had been traded, the FBI also monitored it to reduce the risk of retail investors purchasing. On-chain information shows that the token's trading functionality was disabled 21 days ago.
However, regarding the "phishing token" issued by the FBI, Abstract Chain contributor @0xCygaar pointed out on the X platform that the FBI allegedly violated the MIT License when issuing the NexFundAI token, which could constitute copyright infringement. The FBI directly copied several library files from OpenZeppelin in its smart contract but failed to attach the required license statement in the code. According to the MIT License, all copies or significant portions of the software must include the license statement.
As for this investigation, U.S. Acting Attorney Joshua Levy stated, "This investigation is the first to identify numerous fraudsters in the cryptocurrency industry. Wash trading has long been prohibited in financial markets, and cryptocurrency is no exception. These cases demonstrate the result of innovative technology meeting century-old scams—inflating sales. We will actively pursue fraudulent activities, including within the crypto industry."
"Cryptocurrency will soon be regulated; it's just a matter of time. Regulation will help eliminate its gambling stigma," commented Ki Young Ju, founder of CryptoQuant, regarding this lawsuit.
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