The District of Massachusetts Attorney’s Office filed criminal charges against a total of eighteen individuals and multiple connected entities that allegedly engaged in fraud and market manipulation of crypto assets.
The lawsuit claims that the group routinely engaged in “wash trading,” a practice that artificially creates volume and liquidity by selling a security with one broker and simultaneously buying it at another.
The leadership team of four crypto companies were targeted by the legal proceeding. These firms were deemed “market makers” but what they did in practice was manipulate the price of certain digital assets to their benefit.
Some employees were also charged by the lawsuit, which was filed in collaboration with the US Securities and Exchange Commission (SEC)
Four of the defendants have already pleaded guilty according to a statement released by the state’s Attorney’s Office on Wednesday while three were captured in the United Kingdom, Portugal, and Texas.
Authorities informed that they dismantled a network of trading bots that performed wash trades covering over 60 digital assets while they also seized over $25 million from these entities.
Eight Companies Are Accused of Market Manipulation and Wire Fraud
The firms used several deceptive tactics to artificially inflate the value of a handful of digital assets so unwary investors thought that the market was favoring them.
The scheme was highly sophisticated and included social engineering campaigns that spread false statements about these assets, the execution of wash trades, inflating trading volumes, and persuading investors about the appeal of these cryptocurrencies.
As a result, the price of the tokens increased and these companies later on sold them to take advantage of the hype and profit from it. These schemes are often known in the crypto space as “rug pulls,” however this case is particularly relevant as it portrays a huge network of interconnected parties that systematically deceived the market.
The list of companies that are being accused of engaging in wash trading and manipulation is quite long, which raises concerns about the widespread implementation of these deceptive schemes in what is still a largely unregulated market.
These are the names of the entities named in the Attorney’s Office and SEC press releases:
- Gotbit Consulting LLC
- ZM Quant Investment LTD
- CLS Global FZC, LLC
- MyTrade MM
- Saitama LLC
- Robo Inu Finance
- VZZN
- Lillian Finance LLC
Saitama is reportedly the largest entity of all and reportedly had a market value of over $7 billion at some point.
The defendants allegedly used sophisticated methods to manipulate the cryptocurrency markets, including wash trading, use of algorithms and trading bots, multiple wallets, artificial trading volume generation, and pump and dump schemes.
They were reportedly hired by crypto projects and companies to engage in these activities so they could create a false impression of market activity, positive performance, and overall success that deceived unwary investors.
Saitama’s leadership team included a 43-year-old United Kingdom citizen named Manpreet Kohli who served as the firm’s Chief Executive Officer. This person was arrested three days ago in his home country.
Alongside various co-workers, they are being accused of committing wire fraud, market manipulation, and conducting an unlicensed money-transmitting business among other severe charges.
Despite the severity of these accusations, the official X account of SaitaChain shared a post 12 hours ago where they claimed that their operations were still running “as usual.”
Business operations at SaitaChain LTD will continue as usual, without any disruption.
We are aware of the allegations currently circulating. We will address these matters as soon as we have further information.
Thank you for your continued patience and support during this time
— SaitaChain (@SaitaChainCoin) October 9, 2024
The FBI Used a Fake Crypto Company to Catch These Criminals
The investigation, dubbed “Operation Token Mirrors,” was a collaborative effort led by the Federal Bureau of Investigation (FBI).
The agency created a crypto company called NexFundAI and a token to do business with the perpetrators of these financial crimes so they could understand and ultimately take down their operation.
Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division, stated: “What we uncovered has resulted in charges against the leadership of four cryptocurrency companies, and four crypto ‘market makers’ and their employees who are accused of spearheading a sophisticated trading scheme that allegedly bilked honest investors out of millions of dollars.”
These charges brought up by the state Attorney’s Office could result in up to 20 years in prison, substantial fines, and asset forfeiture for those who have been captured thus far. According to the statement, some Saitama team members currently live in Vietnam – a country that has no active extradition treaty with the US.
In a coordinated effort, the Securities and Exchange Commission (SEC) has filed civil complaints alleging violations of securities laws related to the conduct at Gotbit, CLS, ZM Quant, Saitama, and Robo Inu.
Also read: Next Meme Coin to Invest in October 2024
The SEC’s charges focus on the manipulation of crypto assets that were offered and sold as securities to retail investors in unregistered transactions.
SaitaChain Token Collapses Following News of the Lawsuit
Saitama’s case is notable as it used its vast resources to manipulate the price of its native token SaitaChain (STC).
Shortly after news of the lawsuit started to circulate, the price of this digital asset collapsed and dropped by more than 70% according to data from CoinMarketCap. As a result, its market capitalization retreated from over $30 million to just $10 million.
According to the statements made by the Attorney’s Office, Saitama’s market manipulation campaign began in July 2021 with coordinated small purchases spread across multiple cryptocurrency wallets.
Robo Inu Finance, created by Vy Pham upon leaving Saitama, allegedly sought to create products that forced users to buy its cryptocurrency. The firm paid Gotbit to artificially inflate the trading volume of the Robo Inu token through wash trades on cryptocurrency exchanges.
Meanwhile, Lillian Finance LLC, a company founded by Bradley Beatty, allegedly made false claims about using blockchain technology in the healthcare industry, fooled investors about the use of token sale proceeds for charitable purposes, generated hundreds of thousands of dollars from the sale of the Lillian Finance token to retail investors, and misappropriated funds that were meant for charity.
Authorities Keep Taking Steps to Bring Order to the Crypto Market
This case is a reminder of how lax regulations can create severe distortion in the crypto market and how opaque operations currently are despite the alleged transparency of blockchain records.
Bad actors can and will be hold accountable by authorities but investors may lose billions in the process as uncovering these operations demands vast resources and technical capabilities for law enforcement agencies.
Also read: 3 Youngsters Stole $243 Million in Bitcoin: Here’s How They Did It
It is also a landmark proceeding for the FBI and other agencies involved as it could serve as a deterrent to other individuals and groups who currently engage in similar activities to take down their operations.
Acting United States Attorney Joshua S. Levy emphasized: “These charges are also a stark reminder of how vigilant online investors must be and that doing your homework before diving into the digital frontier is critical.”
The cryptocurrency industry, while innovative, is not exempt from the laws and regulations that govern traditional financial markets. Although authorities were initially slow to take action at firms that engaged in illicit activities in the crypto market, they appear to be resolved to create a better environment for investors.