Here’s how the FBI used fake crypto to expose widespread fraud 

The FBI created a fake cryptocurrency to identify 18 fraudulent crypto actors in a recent mass fraud arrest.

The FBI has filed criminal charges against 18 individuals and organizations for participating in fraudulent crypto activities and manipulating the market using their own fake cryptocurrency. As part of “Operation Token Mirrors,” FBI agents created a fake cryptocurrency token, NexFundAI, to expose deceptive trading practices such as wash trading and pump-and-dump schemes.

The U.S. Attorney’s Office for the District of Massachusetts announced charges targeting the leaders of four cryptocurrency companies and four financial services firms that acted as market makers.

These firms, including ZM Quant, CLS Global, MyTrade and Gotbit, allegedly manipulated token prices to trick investors into buying at inflated rates. According to the FBI, the scheme resulted in the seizure of $25 million in cryptocurrency and the disabling of several fake trading bots.

A critical component of this operation was the creation of NexFundAI, an Ethereum-based cryptocurrency designed to ensnare market manipulators. Special Agent in Charge Jodi Cohen of the FBI’s Boston Field Office called it an “unprecedented step.”

NexFundAI continues to trade despite being a tool for law enforcement. It currently has a market cap of $177,000 and has seen a 5,000% increase in trading volume in the last 24 hours to $3.5 million, according to DEX Screener data.

The investigation revealed that the accused firms engaged in commercial activities and made false claims about their tokens to attract new investors, which contributed to the tokens rising in value, according to the FBI.

“This first-of-its-kind investigation identified numerous fraudsters in the cryptocurrency industry. Wash trading has long been banned in financial markets, and cryptocurrency is no exception.”

Acting United States Attorney Joshua Levy

FBI’s Operation Token Mirrors

As part of its investigation, the FBI created the fake cryptocurrency to detect and thwart fraudulent activity. ZM Quant, CLS Global and MyTrade were accused of fraudulent trading in the name of fake tokens, while Gotbit and its leadership were accused of similar schemes.

The defendants are accused of fabricating business activity and making false claims about their tokens to attract new investors. They allegedly inflated token prices by resorting to deceptive tactics such as wash trading and then sold them to make a profit in pump-and-dump schemes.

The largest of these companies, Saitama, reportedly reached a market capitalization of billions of dollars at one stage, according to the FBI.

The fraudulent trading artificially inflated token prices and allowed the defendants to profit by selling at these high levels. Five defendants pleaded guilty or pleaded guilty, and authorities arrested additional suspects in Texas, the United Kingdom and Portugal.

The SEC filed civil complaints against several of the firms involved.