FBI secretly created a coin to investigate crypto pump-and-dump schemes

FBI secretly created a coin to investigate crypto pump-and-dump schemes

The FBI created a cryptocurrency as part of an investigation into price manipulation in crypto markets, the government revealed Wednesday. The FBI’s Ethereum-based token, NexFundAI, was created with the help of “cooperating witnesses.”

As a result of the investigation, the Securities and Exchange Commission charged three “market makers” and nine people for allegedly being involved in schemes to drive up the prices of certain crypto assets. The Justice Department charged 18 people and entities for “widespread fraud and manipulation” in crypto markets.

Prosecutors claim the defendants allegedly made false claims about their tokens and executed so-called “wash trades” to create the impression of an active trading market. Three market makers — ZMQuant, CLS Global and MyTrade — allegedly wash traded or conspired to wash trade on behalf of NexFundAI, an Ethereum-based token they did not know was created by the FBI.

"What the FBI has uncovered in this case is essentially a new twist on old-school financial crime," Jody Cohen, special agent in charge of the FBI's Boston division, said in a statement. "What we have uncovered has resulted in charges against the leadership of four cryptocurrency companies and four crypto 'market makers' and their employees who are accused of leading a sophisticated trading scheme that allegedly defrauded honest investors of millions of dollars." Liu Zhou, a "market maker" working with MyTrade MM, allegedly told NexFundAI's promoters that MyTrade MM is better than its competitors because they "control the pump and dump" allowing them to "easily conduct insider trading." An FBI spokesperson told CoinDesk that there was limited trading activity on the coin but did not share additional details. On a press call on Wednesday, Joshua Levy, the acting U.S. attorney for the District of Massachusetts, said trading on the token had been disabled, according to CoinDesk. The DOJ has reportedly secured $25 million from the alleged “fraudulently obtained proceeds,” which will be returned to investors.