Crypto Security Expert Exposes CLS Global Fraud

ZachXBT, a crypto security sleuth, revealed that CLS Global, a firm that recently pleaded guilty to fraud, approached him for promotion. The firm was charged by a federal grand jury in Boston on January 21, as per a notice from the US Department of Justice (DOJ).

In response to CLS Global’s February 14 “Happy Valentine’s Day” post, ZachXBT shared a screenshot of their message requesting a “potential collaboration on X.” He questioned, “Asking me for paid promo when you just plead guilty to fraud charges by the SEC late last year?”

Screenshot of a message CLS Global sent to ZachXBT on X. Source: @zachxbt (X/Twitter)

The fraud charges originate from an October 9, 2024 filing by the US Securities and Exchange Commission (SEC), accusing the firm of wash trading to mislead investors. The company agreed to pay $428,059 in fines and forfeitures and is permanently barred from US crypto markets.

Undercover Operation Details

The US Justice Department revealed that authorities conducted an undercover operation to expose CLS Global’s trading misconduct. They created a fake cryptocurrency project, NexFundAI, complete with a website and an Ethereum-based token on Uniswap. CLS Global agreed to provide market-making services and engage in wash trading—misleading activity meant to inflate trading volume.

A proposal included “Volume Support,” detailing metrics like “total volume” on the CLS Global dashboard. CLS Global traders manipulated trading activity for the NexFundAI token, creating reports showing inflated trading volume.

During conferences in mid-2024, one employee bragged about the complexity of their self-trading tactics, saying, “It’s very hard to track. We’ve been doing that for many clients.”

Chainalysis Findings on Wash Trading

A Chainalysis report from January 29 highlighted the SEC’s charges against several market makers, including CLS Global, for orchestrating deceptive trading activities. The IRS later identified involvement of at least 18 individuals and entities across the UK and Portugal, using automated bots to feign liquidity in the market.

While CLS Global’s methods were exposed in the NexFundAI investigation, wash trading remains a widespread issue in the industry. Chainalysis pointed to Volume.li, a service providing bots for artificial volume generation on decentralized exchanges (DEXs), illustrating the prevalence of manipulative schemes. The service offers various packages allowing clients to purchase significant trading volumes, making the scheme accessible.

Chainalysis emphasized that open-source insights paired with research techniques can clarify potential market manipulations on the blockchain.