FBI Creates Cryptocurrency to Uncover Market Manipulation

The Federal Bureau of Investigation (FBI) has unveiled an unconventional approach in its investigation into cryptocurrency markets by creating its own digital token. The cryptocurrency, named NexFundAI, was developed as part of a broader federal crackdown on fraudulent activities within crypto exchanges, according to a statement made on Wednesday.

Senior officials involved revealed that the FBI collaborated with a number of “cooperating witnesses” to create NexFundAI on the Ethereum blockchain. The endeavor was part of a covert operation that has since led to significant legal actions by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ).

The SEC has brought civil charges against three “market makers” and nine individuals for engaging in illicit schemes intended to artificially increase the value of specific crypto assets. Simultaneously, the DOJ has leveled charges against 18 individuals and organizations, accusing them of “widespread fraud and manipulation” within crypto markets as per federal prosecutors.

Among the alleged activities uncovered were “wash trades”—transactions made to create a misleading impression of increased trading activity. Prosecutors assert that ZMQuant, CLS Global, and MyTrade conspired to employ such tactics on behalf of NexFundAI, apparently unaware that it was an FBI-created token.

“What the FBI uncovered in this case is essentially a new twist to old-school financial crime,” stated Jodi Cohen, special agent in charge of the FBI’s Boston division. Cohen emphasized the sophistication of the alleged schemes, which purportedly deprived honest investors of millions.

Liu Zhou, affiliated with MyTrade, allegedly claimed superiority over competitors by boasting of their ability to manipulate the market with “pump and dump” tactics. An FBI spokesperson acknowledged limited trading activity on NexFundAI but refrained from providing additional details.

Joshua Levy, acting U.S. Attorney for the District of Massachusetts, confirmed that trading on the token has been disabled. Levy remarked that these operations exemplify where “new-age technology, crypto, meets old-school fraud” in a “pump and dump” scheme. This method is notorious in traditional stock markets, involving the artificial inflation and subsequent dumping of shares.

In connection with the investigation, federal prosecutors in Boston have charged Gotbit, ZMQuant, CLS Global, and other entities, resulting in four arrests and agreements by five individuals to plead guilty. These charges are accompanied by the seizure of over $25 million of ill-gotten cryptocurrency gains to be restored to investors.

The SEC has also imposed civil charges on prominent individuals such as the now-arrested CEO of Saitama, whose company reportedly manipulated their token to reach a $7.5 billion market value.

Other notable charges include those against Aleksei Andriunin, CEO of Gotbit, arrested in Portugal, and additional individuals associated with various misconduct. While the circumstances of their involvement remain under scrutiny, the case underscores a significant federal push to curb illegal activities in digital financial markets.