U.S. Prosecutors Charge Crypto Companies

On Wednesday, U.S. prosecutors charged four cryptocurrency companies—Gotbit, ZM Quant, CLS Global, and MyTrade—along with 14 individuals. This action included several international arrests, as reported by Reuters.

The U.S. Justice Department has intensified its scrutiny on cryptocurrency firms over the past year, highlighting significant actions against notable firms like Binance. This prosecution is described by officials as the first criminal case against financial services firms concerning market manipulation and fraudulent trading practices in the crypto sector.

Four defendants have reportedly agreed to plead guilty, and over $25 million in cryptocurrency has been seized as stated by the U.S. Attorney's Office for Massachusetts.

According to prosecutors, these defendants created crypto firms, misrepresented their cryptocurrencies, and engaged in wash trading to fabricate trading activity. This deceptive practice led to inflated token prices that investors mistakenly perceived as solid investments, benefiting the defendants when selling at these inflated prices.

The implicated firms allegedly hired market makers—identified as ZM Quant, Gotbit, CLS Global, and MyTrade—to conduct these wash trades in return for payment.

Joshua Levy, acting United States Attorney, emphasized that exploiting innovative technologies like cryptocurrency to engage in fraudulent activities akin to a pump and dump scheme will be met with stringent consequences. His office will pursue fraud aggressively in the crypto space.

In a unique development, the FBI established its own cryptocurrency, NexFundAI, to assist in uncovering misconduct. Jodi Cohen, FBI Boston Division special agent, noted the unprecedented nature of this initiative in the fight against fraud.

Additionally, the U.S. Securities and Exchange Commission (SEC) filed civil charges against ZM Quant, Gotbit, and CLS Global, affecting nine individuals. Among these, Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham are accused of hiring market makers to create artificial trading volumes and manipulate cryptocurrency prices for retail investors.

The SEC also pointed out ZM Quant’s Baijun Ou, Ruiqi Lau, Gotbit’s Fedor Kedrov, and CLS Global’s Andrey Zhorzhes for their alleged roles in market manipulation through wash trading on popular crypto trading platforms.

Sanjay Wadhwa, the SEC’s Deputy Director of Enforcement, highlighted that today’s actions reaffirm the vulnerabilities retail investors face against fraudulent maneuvers by institutional players in the crypto markets.

The SEC's complaints aim for permanent injunctions, restitution, and disqualifications from holding executive positions.

_Update: Oct. 9, 8:40 p.m. UTC – Included additional details throughout the report.