NexFundAI: FBI relies on its crypto token in action against crypto fraudsters
A novel trick by investigators paid off. Fifteen people and three companies are now suspected of market manipulation.
(Image: Chinnapong/Shutterstock.com)
In the fight against market manipulation and fraud with cryptocurrencies, the FBI has resorted to unusual means. Without further ado, the investigators launched their own Ethereum token and the associated operating company with the hype-worthy name "NexFundAI". They then engaged their investigative targets in illegal airdrops to artificially inflate the value of the token. The suspects then sought to enrich themselves by selling their crypto holdings.
The crypto industry, long notorious for its lack of regulation, is apparently repeating many of the mistakes and scams of the traditional financial world. This was also the case in the FBI's "Operation Token Mirrors" together with various other US federal and regional authorities as well as investigators from Portugal and the UK.
The US federal agents were on the hunt for fraudsters who artificially inflate the value of crypto tokens by airdrops to be able to sell their holdings, which they had previously acquired at low prices, at a higher price. This scam is known as"pump and dump", for example from the movie "Wolf of Wall Street". It makes use of shares with a low nominal value and trading volume, so-called "penny stocks", and is basic: just a few purchases and sales simulate increased market interest and cause the price of the share to skyrocket.
The investigators approached crypto companies such as ZM Quant, CLS Global and MyTrade with a similar approach. They created the "NexFundAI" token on the Ethereum blockchain and instructed the companies to simulate a high trading volume through fake purchases and sales. Since these "wash trades" involve buying and selling in direct succession, there is no risk for the fraudsters – but uninvolved third parties could assume that the value of the token is about to explode.
With good reason, all of these practices are illegal under US law, especially "wash trades" and "pump and dump". However, the companies involved are said to have not only pumped up the value of the fake "NexFundAI" token, but also that of their own crypto coins and raked in millions in profits. The largest of the companies now charged had a market capitalization of USD 7.5 billion.
For their "pump and dump" activities, the suspects allegedly used bots and coordinated their actions via Telegram. To cover their tracks, they then instigated various crypto exchanges to launder money, according to the indictment.
Up to 20 years in prison
Two suspects are now in custody awaiting extradition to the United States. A third detainee is currently being held in Texas. The public prosecutor's office is bringing charges against twelve other suspects before the district court in Boston. Crypto money to the value of 25 million US dollars was seized during the operation, as were the bots that the suspects are alleged to have used to manipulate the market.
In the USA, market manipulation is punishable by prison sentences of up to 20 years and fines of up to twice the fraudulently generated profit. The prosecutor also accuses the defendants of money laundering, operating unlicensed financial institutions and electronic fraud ("wire fraud"). The prospect of long prison sentences has apparently increased the willingness of some suspects to cooperate. Four of them have already signed an admission of guilt and a fifth is about to do so, according to a statement from the public prosecutor's office.
Fraud with crypto tokens and NFTs is widespread. Time and again, "pump and dump" campaigns and so-called "rug pulls" make headlines, for example with "Safemoon" or the "Mutant Ape Planet".
(cku)
