The District of Massachusetts Attorney’s Office has charged eighteen individuals and several related entities with fraud and market manipulation involving crypto assets. The lawsuit alleges the group engaged in "wash trading," a practice that artificially inflates volume and liquidity by simultaneously selling and buying the same security through different brokers. Four crypto companies, identified as "market makers," allegedly manipulated digital asset prices for their own gain. The lawsuit, filed in collaboration with the US Securities and Exchange Commission (SEC), also charges some employees. According to a statement released Wednesday by the Attorney’s Office, four defendants have pleaded guilty, while three others were apprehended in the United Kingdom, Portugal, and Texas. Authorities have dismantled a network of trading bots responsible for wash trades involving over 60 digital assets and seized more than $25 million from these entities.
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Eight Companies Are Accused of Market Manipulation and Wire Fraud
Several firms employed deceptive tactics to artificially boost the value of certain digital assets, misleading unsuspecting investors into believing the market favored these assets. This sophisticated scheme involved social engineering campaigns spreading false information, executing wash trades, inflating trading volumes, and convincing investors of the appeal of these cryptocurrencies. Consequently, the token prices rose, allowing these companies to sell and profit from the ensuing hype. Such schemes, often referred to as "rug pulls" in the crypto space, are particularly noteworthy in this case due to the extensive network of interconnected parties systematically deceiving the market.
The list of accused companies engaged in wash trading and manipulation is extensive, highlighting concerns about the widespread use of these deceptive practices in the largely unregulated market. Entities named in the Attorney’s Office and SEC press releases include:
- Gotbit Consulting LLC
- ZM Quant Investment LTD
- CLS Global FZC, LLC
- MyTrade MM
- Saitama LLC
- Robo Inu Finance
- VZZN
- Lillian Finance LLC
Saitama, reportedly the largest entity, once had a market value exceeding $7 billion. The defendants allegedly used advanced methods to manipulate cryptocurrency markets, such as wash trading, algorithms, trading bots, multiple wallets, artificial trading volume generation, and pump-and-dump schemes. They were reportedly hired by crypto projects and companies to create a false impression of market activity, positive performance, and overall success, deceiving unwary investors.
Saitama’s leadership included Manpreet Kohli, a 43-year-old UK citizen who served as CEO. He was arrested three days ago in his home country. Along with various colleagues, they face charges of wire fraud, market manipulation, and operating an unlicensed money-transmitting business, among other serious allegations. Despite these accusations, SaitaChain's official X account posted 12 hours ago, claiming their operations continue "as usual."
The FBI Used a Fake Crypto Company to Catch These Criminals
The investigation, named "Operation Token Mirrors," was spearheaded by the Federal Bureau of Investigation (FBI) in collaboration with other agencies. The FBI established a cryptocurrency company, NexFundAI, and developed a token to engage with the suspects involved in financial crimes, aiming to dismantle their operations. Jodi Cohen, Special Agent in Charge of the FBI's Boston Division, remarked, "Our findings have led to charges against leaders of four cryptocurrency firms and four crypto 'market makers,' along with their employees, who are accused of orchestrating a complex trading scheme that defrauded honest investors of millions."
The charges, filed by the state Attorney's Office, could lead to sentences of up to 20 years in prison, significant fines, and asset forfeiture for those apprehended. The statement notes that some Saitama team members reside in Vietnam, which lacks an active extradition treaty with the US. Concurrently, the Securities and Exchange Commission (SEC) has lodged civil complaints alleging securities law violations related to activities at Gotbit, CLS, ZM Quant, Saitama, and Robo Inu.
The SEC's allegations focus on the manipulation of crypto assets marketed and sold as securities to retail investors through unregistered transactions.
SaitaChain Token Collapses Following News of the Lawsuit
Saitama's case stands out due to its extensive use of resources to manipulate the price of its native token, SaitaChain (STC). Following the lawsuit's emergence, the digital asset's price plummeted by over 70%, as reported by CoinMarketCap. Consequently, its market capitalization fell from more than $30 million to just $10 million.
According to the Attorney's Office, Saitama's market manipulation efforts began in July 2021, involving coordinated small purchases across multiple cryptocurrency wallets. Vy Pham, after departing from Saitama, established Robo Inu Finance, which allegedly developed products compelling users to buy its cryptocurrency. The firm reportedly hired Gotbit to artificially boost the Robo Inu token's trading volume through wash trades on cryptocurrency exchanges.
Additionally, Lillian Finance LLC, founded by Bradley Beatty, is accused of falsely claiming to use blockchain technology in the healthcare sector, misleading investors about the allocation of token sale proceeds for charitable purposes, and generating significant revenue from selling Lillian Finance tokens to retail investors. The company is also alleged to have misused funds intended for charity.
Authorities Keep Taking Steps to Bring Order to the Crypto Market
This case highlights how lax regulations can significantly distort the crypto market and how operations remain opaque despite blockchain's supposed transparency. While authorities can hold bad actors accountable, investors risk losing billions as uncovering these operations requires substantial resources and technical expertise from law enforcement agencies.
Additionally, this case is a landmark for the FBI and other involved agencies, potentially deterring others engaged in similar activities. Acting United States Attorney Joshua S. Levy stressed: “These charges serve as a stark reminder for online investors to remain vigilant and to thoroughly research before entering the digital frontier.”
Although the cryptocurrency industry is innovative, it is not exempt from the laws and regulations governing traditional financial markets. Initially slow to act against firms involved in illicit activities, authorities now seem determined to create a safer environment for investors.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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