On October 9, the US authorities announced criminal charges against 18 individuals and entities for committing fraud and manipulating cryptocurrency markets.
This is the first criminal case for market manipulation and wash trading in the crypto market.
No land for wash traders
The defendants include leaders from four cryptocurrency token issuers: Saitama, Robo Inu, VZZN, and Lillian Finance, as well as four widely known crypto market makers, ZM Quant, CLS Global, MyTrade, and Gotbit.
Prosecutors claim that these individuals engaged in wash trading, a tactic where fake trades are made to create a false sense of high trading activity.
This practice artificially inflated the price of various cryptocurrencies, luring in unsuspecting investors.
The accused allegedly sold their tokens at these inflated prices as part of a classic pump and dump scheme.
Authorities seized over $25 million in cryptocurrency and shut down numerous trading bots used for executing wash trades.
Four defendants already pleaded guilty, while others were arrested in Texas, the U.K., and Portugal.
Play nice
The FBI conducted an undercover operation called “Operation Token Mirrors,” where agents created their own cryptocurrency token and company to investigate fraudulent activities in the crypto market.
This operation helped uncover how certain token issuers and market makers worked together to inflate token prices artificially.
US Attorney Joshua Levy emphasized the importance of this investigation by stating that it identified many fraudsters in the crypto industry, and warned that making false statements to deceive investors is fraud, regardless of the technology involved.
He stressed that online investors need to be vigilant and do their research before investing in digital assets.
Same, but different, but still the same
Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, added that this case represents a new twist on old financial crimes, and explained that “Operation Token Mirrors” targeted dishonest token developers, promoters, and market makers within the crypto space.
The FBI’s approach allowed them to create their own cryptocurrency to identify and disrupt these fraudulent activities effectively, from inside.
Now many expect as authorities continue to crack down on fraudulent practices in the crypto market, this could lead to increased scrutiny and regulation in the industry.
