How the FBI Used a Crypto Token to Bust a Major Fraud Scheme

• The Federal Bureau of Investigation (FBI) recently launched a crypto token, but it’s not for what you think.
• An undercover operation collaborating with other agencies has busted a market manipulation scheme.
• The indicted are now facing legal action.

From hacks and scams to fraudulent price maneuvers manipulation, the darker side of the crypto industry is plagued by various forms of illicit activity. This has prompted enforcement actions from global authorities, all seeking to curb the rising influence of bad actors in the space.

The latest crackdown in the ongoing trend comes from the Federal Bureau of Investigation (FBI), which recently busted a market manipulation scheme, albeit with an interesting twist.

FBI’s Crypto Sting Exposes Wash Trading Scheme

As the saying goes, “To catch the wolf, you must think like a wolf.” In a recent undercover operation, the Federal Bureau of Investigation (FBI), the Securities and Exchange Commission (SEC), and the Department of Justice collaborated in an elaborate sting to expose a crypto scam .

According to the indictment , the individuals involved made false claims about various tokens, executing sham trades to paint a false appearance of value to investors. The misleading tactics drove up token prices, prompting unsuspecting buyers to jump in. However, once the prices peaked, the fraudsters allegedly sold their tokens at these inflated values, leaving investors with worthless assets in a classic “pump-and-dump” fraud. 

To infiltrate the scheme, the FBI crafted a seemingly legitimate token called NextFundAi, which allowed the perpetrators to be identified and trapped. Commenting on the operation, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division Jodi Cohen emphasized the extent of the misconduct.

“What the FBI uncovered in this case is essentially a new twist to old-school financial crime,” he stated, adding  “The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and bring these alleged fraudsters to justice.”

Several of the accused have been arrested and convicted by the Justice Department, with over $25 million worth of crypto seized. The SEC has also unveiled charges against the accused, detailing their scheme. 

How the Scam Operated 

The wash trading scheme was led by three companies purporting to be market makers and nine other individuals. According to the SEC’s release, Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham operated as the scheme’s main promoters.

These individuals hired so-called market makers ZM Quant and Gotbit to provide market manipulation services, which included generating artificial trading volume and manipulating various asset prices.

A third market maker , CLS Global, was also busted in a similar scheme. It was responsible for manipulating the crypto token created by the FBI during the investigation. The indictment identified the most prominent entity in the scheme as Saitama, which at one point boasted a multi-billion-dollar market value.

The accused are now facing extensive legal consequences, including permanent injunctions and hefty penalties.

On the Flipside

• The FBI also recently raised concerns over an ICHCoin scam targeting the crypto industry.
•  In September 2024, the agency revealed that fraudulent schemes throughout 2023 resulted in losses exceeding $5 billion.

Why This Matters

The crackdown on the fraudulent scheme by the FBI, SEC, and DOJ reinforces the increasing enforcement actions by global authorities to combat crime within the industry.

Read this article for more about increasing regulatory actions by the agency:
FBI Warns Americans as Crypto Enforcement Actions Intensify

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