Multiple Charges Filed for Alleged Crypto Market Manipulation Scheme

US authorities have filed what they say are the first charges against financial services firms for market manipulation and “wash” trading in crypto markets.

The US Department of Justice (DoJ) and Securities Exchange Commission (SEC) have charged the heads and other employees of four crypto firms and four crypto market makers over a plan to boost the value of crypto tokens through wash trading as part of a “pump and dump” scheme. Four of those accused have pleaded guilty, one has agreed to do the same, while three others have been arrested. The authorities say multiple trading bots responsible for the wash trades across approximately 60 different cryptocurrencies have been deactivated.

The crypto companies allegedly hired market makers to wash trade their tokens in exchange for payment. As one market maker defendant, who has agreed to plead guilty, described the practice to a prospective client: the “objective on the secondary markets” is to find “other buyers from the community, people you don’t know about or don’t care about” because “we have to make [the other buyers] lose money in order to make profit”, the DoJ states.

Three market makers—ZM Quant, CLS Global and MyTrade – along with their employees are charged with allegedly wash trading and/or conspiring to wash trade on behalf of NexFundAI, a crypto company and token. A fourth market maker, Gotbit, its CEO, and two of its directors are also charged for perpetrating a similar scheme.

“This investigation, the first of its kind, identified numerous fraudsters in the cryptocurrency industry,” says acting US attorney Joshua Levy. “Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception. These are cases where an innovative technology – cryptocurrency – met a century old scheme – the pump and dump. Our office will aggressively pursue fraud, including in the cryptocurrency industry.”

Jorge Tenreiro, acting chief of the Division of Enforcement’s crypto asset and cyber unit, adds, “We remain concerned about the ease with which the market for a crypto asset can be manipulated and are committed to rooting out instances of such misconduct when it involves securities.”