FBI Takes Down Crypto Wash Trading Ring Seizes $25 Million

• The FBI has uncovered a “wash trading” syndicate.
• The syndicate comprised token developers, promoters, and market makers.
• Four of the arrested suspects have pleaded guilty.

The Federal Bureau of Investigation (FBI) has exposed a wash trading operation involving crypto token developers, promoters, and market makers. According to a report from the U.S. Department of Justice (DOJ), four cryptocurrency companies, four market makers, and their employees allegedly conspired to manipulate crypto users and steal substantial amounts of money.

Kaiko Research, the crypto data analysis firm, provided insights on how the FBI systematically tracked the suspects. According to Kaiko Research, the FBI created a DeFi firm, NexFundAI and released a native token, using the process to track and expose what the DOJ described as a first-of-a-kind occurrence in the crypto sector. 

FBI Exposes Wash Trading Tactics

In what Kaiko called a prime example of wash trading in DeFi, the FBI’s undercover project revealed how crypto tokens flowed from NexFundAI to market makers’ wallets and then to numerous other wallets. These funds were then used for wash trading on the token’s only secondary market, which was set up by the issuer on Uniswap.

The FBI reportedly identified 18 individuals who played various roles in the Wash Trading Pump-and-Dump scheme. The charging documents against the alleged fraudsters stated that they created cryptocurrency companies and made false statements about their native tokens. Continuing with their scheme, the suspects executed sham trades in those tokens to create the illusion of trading activity and make the tokens appear like profitable investments.

Read also: Binance Fires Investigator Who Implicated VIP Clients in $300M Wash Trading

The deceptive actions attracted investors who bought those tokens, leading to more price inflation, after which the creators sold their holdings at artificially inflated prices. As of writing, the DOJ reported that four arrested suspects have pleaded guilty, with another defendant agreeing to plead the same. The authorities had apprehended three other defendants in Texas, the United Kingdom, and Portugal and seized over $25 million in cryptocurrency.

Authorities shut down multiple trading bots allegedly used to execute millions of dollars worth of wash trades across over 60 cryptocurrencies. The DOJ’s report identified Saitama as the main trading platform involved in the scheme. It also named three market makers—ZM Quant, CLS Global, and MyTrade—and their employees as participants in the alleged wash trading scam.