Author: Nancy, PANews
Market makers are recognized as important liquidity providers in the market, such as the "experts" of the New York Stock Exchange and the "dealers" of the Hong Kong Stock Exchange. They have considerable influence on market prices, especially in the field of encryption, where they have the "power of life and death" over altcoins. Recently, U.S. regulators jointly lured Gotbit and other market makers through fishing enforcement methods, and filed charges of market manipulation and fraud. This is also the first case of its kind.
Multiple market makers and employees were charged, and more than $25 million in cryptocurrencies were 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 joint charges against eighteen individuals and entities for large-scale fraud and manipulation in the crypto market, including Gotbit Consulting, ZM Quant Investment, CLS Globa, and Saitama.
Court documents show that these institutions secretly provided wash trading services to crypto projects, exaggerating trading volumes to create the illusion of active trading to attract investors, and then selling tokens at inflated prices. The largest institution involved in the manipulation was Saitama, which once reached a market value of billions of dollars.
Among them, Gotbit is a market maker that is intensively involved in the MEME field. Its MEME projects that participate in market making include BONK, ANALOS, DUKO, PENG and SOLAMA, but Gotbit has also been questioned due to multiple cooperative projects RUG. In fact, Gotbit founder Alexey Andryunin once said in an interview with Coindesk that the platform uses market manipulation as a means of livelihood, and described how it developed code to trade to artificially raise the volume of encrypted transactions and avoid being discovered. In the report, Andryunin claimed that Gotbit's market making service can bring the "trading volume" of tokens to a level sufficient to be listed on CoinMarketCap, and even rank between 300 and 500. However, Andryunin also admitted that "Gotbit's business is not registered in any jurisdiction and is not entirely ethical. Doing what we are doing now on Nasdaq would constitute a financial crime." Currently, Alexey Andryunin has been charged with wire fraud, conspiracy to manipulate the market, wire fraud and conspiracy to launder money.
ZM Quant claimed to be a trading robot that could "create trading volume" and provided market manipulation services for Saitama and NexFundAI. The prosecution documents revealed that ZM Quant discussed these illegal services with customers through Telegram messages and video conferences, such as how to "perhaps trade ten or twenty times" per minute to increase trading volume and drive up prices, and how to use multiple trading wallets to avoid transactions that are too fake.
CLS was also charged with wire fraud and conspiracy to commit market manipulation and wire fraud. CLS allowed millions of dollars of fake trading per day in each of its customers’ cryptocurrencies so that the tokens could avoid exchange listing fees and pump and dump.
Saitama claims that its market value reached $7.5 billion at its peak, and that the project's leadership actively manipulated the market and secretly sold it by issuing multiple false public statements, making tens of millions of dollars in profits. Saitama's market manipulation activities began in 2021, when the project operated multiple crypto wallets to purchase tokens in small amounts to create the illusion of large purchases and new holders, thereby stimulating investors to buy, and then hired ZM Quant and Gotbit to conduct wash sales on exchanges.
In this case, more than $25 million in cryptocurrency has been seized, and multiple trading bots responsible for millions of dollars in wash trades for approximately 60 different cryptocurrencies have been deactivated.
FBI issues tokens for phishing enforcement, but is accused of copyright infringement
It is worth mentioning that the reason these crypto market makers were brought to justice was mainly due to the sting operation by the FBI.
It is reported that in the "Token Mirror Operation", the FBI created a token called NexFundAI and a crypto company NexFundAI on Ethereum, and used the identity of the company and the token to meet with market makers to discuss cooperation. ZM Quant, CLS Global and MyTrade all agreed to assist in manipulating the token.
Although the token was traded, the FBI also conducted monitoring to reduce the risk of retail investors purchasing it. On-chain information shows that the token’s trading function was closed 21 days ago.
However, regarding the "fishing tokens" 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 token NexFundAI, which may constitute copyright infringement. The FBI directly copied multiple library files of OpenZeppelin in its smart contract, but did not attach the license statement in the code as required. According to the provisions of the MIT license, all copies or significant parts of the software must include a license statement.
Regarding this investigation, Acting U.S. Attorney Joshua Levy stated, “This investigation is the first to identify numerous fraudsters in the cryptocurrency industry. Wash trading has long been banned in financial markets, and cryptocurrencies are no exception. These cases show the result of innovative technology meeting a century-old scam - pump and dump. We will actively pursue fraud, including in the crypto industry.”
"It's only a matter of time before cryptocurrencies are regulated. Regulation will help eliminate their gambling stigma," said Ki Young Ju, founder of CryptoQuant, in response to the lawsuit.