FBI used fake crypto tokens to catch alleged market manipulators
The first-ever criminal charges against financial services firms for crypto market manipulation have been marked by unusual tactics from the FBI, which created its own crypto asset to catch the suspects.
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The first-ever criminal charges against financial services firms for crypto market manipulation have been marked by unusual tactics from the FBI, which created its own crypto asset to catch the suspects.
The US Attorney's Office, District of Massachusetts, announced that 18 individuals and entities, including market makers ZM Quant, CLS Global, MyTradem, and Gotbit, have been charged with widespread fraud and manipulation in crypto markets. Some of the accused have already pleaded guilty, and over $25 million worth of crypto assets have been seized.
Additionally, the announcement revealed that multiple trading bots tied to "millions of dollars’ worth" of fake trading across approximately 60 different crypto assets have been deactivated.
"These deceptive tactics allegedly attracted new investors and purchasers, resulting in an increase in the tokens’ trading prices," the Attorney's Office said, alleging that the suspects sold their tokens in a "pump and dump" scheme.
An unidentified defendant was quoted in the announcement, stating that their job was to find "other buyers from the community, people you don’t know about or don’t care about" because "we have to make [the other buyers] lose money in order to make a profit."
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Meanwhile, the suspects were caught thanks to the FBI, which "took the unprecedented step" of creating its own crypto token and company to identify and apprehend the charged individuals.
For instance, ZM Quant, CLS Global, and MyTrade allegedly agreed to wash trade on behalf of NexFundAI, the crypto company and token created specifically by the FBI.
This case has also caught the attention of crypto industry observers.
Conor Grogan, head of product business operations at the Coinbase exchange, noted that the FBI has seemingly revealed their wallets, which have made dozens of trades.
"From what I can tell, FBI-linked wallets have recently deposited to Tokenlon, Binance, Zixipay, and HTX," Grogan added.
If the Coinbase director is correct, the wallets in question also hold ethereum (ETH) and pornrocket (PORNRO).
Meanwhile, popular crypto personality Cygaar claims that he notified the FBI that its smart contracts are "in direct violation of the MIT License and thus are subject to copyright infringement."
"You clearly copy-pasted several of OpenZeppelin's libraries (which use the MIT License) but don’t have a license on the code yourself," Cygaar said, quipping that he has alerted "the FBI to take the necessary steps against the… FBI."