The US Federal Bureau of Investigation (FBI) has used a fake AI Cryptocurrency fund to hunt down alleged fraudsters involved in market manipulation.
According to an October 7 indictment filed in the U.S. District Court for the District of Massachusetts, the cryptocurrency known as “NexFundAI (NEXF)” was presented as a crypto security, claiming to represent shares in an artificial intelligence-related fund.
According to the indictment, the FBI told the scammers that it wanted help manipulating the trading volume of the token, in an attempt to trick investors into believing the coin was more popular than it actually was.
The scammers agreed to assist in the fraud, and the agency used evidence gathered during the process to charge them. This is the first time the FBI has admitted to creating a cryptocurrency as part of an investigation and the first time a cryptocurrency market maker has been charged with price manipulation.
Crypto market makers have been accused many times in the past of price manipulation.
The FBI reportedly discovered in July 2024 that crypto market maker MyTrade MM offered to guarantee a minimum and maximum volume for token issuers. The company reportedly posted this commitment on its website.
Alleged advertisement of MyTrade MM's volume support service. Source: US Department of Justice.
The agency's undercover agents met with a member from the crypto exchange LBank on August 20. LBank used MyTrade as a market maker. They agreed to launch the NEXF Token on LBank and use MyTrade as a market maker.
The officers then met with Liu Zhou, the founder of MyTrade, also known as “David Zhou” or “DZ,” who allegedly explained in detail how the company used wash trading to create fake volume and trick investors into buying coins with no real interest, as well as how it facilitated rapid price pumps and drops. “We have to make them lose money to make a profit and refund the listing fee,” Zhou allegedly told the officers.
The NexFundAI token was launched on or around October 2 on the LBank exchange. On that day, MyTrade MM executed wash trades worth millions of dollars for about 60 customers, according to the indictment.
Zhou and two other co-defendants were charged with conspiracy to commit market manipulation and wire fraud, which carry a maximum sentence of five years in prison. Zhou has agreed to plead guilty, according to an October 9 announcement from the U.S. Department of Justice (DOJ).
The DOJ also announced that 18 individuals have been charged in multiple crypto market manipulation cases, of which the NexFundAI case is just one. Three co-defendants were mentioned in the NexFundAI case, but only Zhou was named and charged.
Is NexFundAI the same as BE54c coin?
Some crypto users have speculated that the Token listed in the indictment is the Token with the Ethereum address 0x16ca471aE755f8a2cD4eC315A4a7439dcfEBE54c.
For example, blockchain analytics firm Bubblemaps posted to X on October 10 that, “So @FBI issued a Token… and the bubble map looks like this…” They provided a link to the Bubblemaps page for the BE54c Token.
On the same day, Pop on Punk, the creator of the G8keep Token discovery protocol, also claimed that the BE54c Token was the correct Token. They claimed to be the auditors of the contract and posted crying emojis thinking they had contributed to the FBI.
Coinbase director J. Connor Grogan agreed that the BE54c coin was the correct one. He said the FBI created the coin using a wallet account ending in bf3. That account was funded from another wallet, which itself was funded by a wallet containing a token called “Pornrocket,” which Grogan seemed to find humorous.
The BE54c token may be an FBI-created one. It has the same name as the Token mentioned in the indictment, and it was created on May 29, just four months before the FBI released their Token on the LBank exchange.
No connection to LBank
However, Arkham Intelligence data shows there is no direct connection between the BE54c Token creation account and any known LBank wallet.
Alleged FBI Token Deployment Account Transactions. Source: Arkham.
This suggests that it could be a clone of the FBI Token instead of the original, or that BE54c is the original “NexFundAI” coin, while the FBI Token is named after it.
This does not conclusively prove that the BE54c Token was not created by the FBI. It is possible that Arkham's data on the LBank wallet is incomplete or that the Tokens were transferred to another account before being deposited into the exchange.
However, this implies that more evidence is needed to prove that this Token is the one stated in the indictment.
Suspicions of market manipulation continue to haunt the crypto space. On September 29, Dutch watchdog AFM warned token issuers that pump and dump schemes will be explicitly banned in the European Union after December 30.
In June, the Italian government announced that it would also step up enforcement, imposing fines of up to €5 million on individuals manipulating the market through prohibited forms of trading.
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