Recent reports indicate that the FBI established a cryptocurrency firm and a crypto token as a means to ensnare scammers engaged in ‘pump-and-dump’ schemes.
This approach, which involves executing fraudulent trades to inflate prices before profiting, proved highly effective, resulting in the arrest of 18 individuals for ‘widespread fraud and manipulation in the cryptocurrency markets.’ This marks the first instance of criminal charges being filed against financial service companies for ‘wash trading’ and market manipulation within the cryptocurrency sector.
During the operation, over $25 million in cryptocurrency was confiscated, along with trading bots that facilitated millions of dollars in ‘wash trades’ across approximately 60 different cryptocurrencies, all of which have now been disabled.
‘Operation Token Mirrors’
The cryptocurrency created by the FBI was an Ethereum-based asset called NexFundAI, used to monitor unsuspecting traders.
‘Wash trades’ refer to the illicit act of buying and selling the same security to manipulate the market. Recent findings suggest that up to 70% of all cryptocurrency transactions may fall into this category, which explains the heightened interest from law enforcement agencies.
“These instances demonstrate a convergence of an innovative technology – cryptocurrency – with an age-old scheme – the pump and dump. Today’s message is clear: if you mislead investors with false statements, that constitutes fraud. End of story,” remarked Acting United States Attorney Joshua Levy.
“These charges serve as a crucial reminder for online investors to remain vigilant and to conduct thorough research before venturing into the digital marketplace. Those looking to invest in the cryptocurrency sector must understand these scams to safeguard themselves,” he further advised.
Additionally, the Securities and Exchange Commission brought charges against three ‘market makers,’ individuals who facilitate two-sided markets for securities.
Recently, there has been a surge of negative news for crypto investors, with crypto-related cybercrime witnessing a record year; stolen fund inflows have surged to approximately $1.58 billion in 2024.
