DoJ, SEC charge ‘crypto’ market makers with market manipulation

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A handful of ‘crypto’ market makers (MMs) have been charged with market manipulation and fraud for artificially inflating the fiat price of a handful of memecoins but also—gasp!—the mighty BTC.

On October 9, the U.S. Attorney’s Office for the District of Massachusetts announced charges against 14 individuals and four entities accused of “widespread fraud and manipulation in the cryptocurrency markets.” The feds seized over $25 million worth of tokens along with “multiple” trading bots used in the wash trading of certain tokens, while around 60 different tokens “have been deactivated.”

Operation Token Mirrors got help from the Federal Bureau of Investigation (FBI), the Internal Revenue Service Criminal Investigation (IRS:CI) unit, and elements of the National Cryptocurrency Enforcement Team (NCET), along with agencies in Portugal and the United Kingdom.

Four of the companies—Lillian Finance, Robo Inu Finance, Saitama, and VZZM—were ‘crypto’ firms that issued and promoted tokens. The MMs—Gotbit Consulting, CLS Global FZC, MyTrade MM, and ZM Quant—are accused of artificially pumping the trading volume of these tokens to give the impression of retail trader interest that would lure in actual retail traders on whom to dump these worthless coins.

Incredibly, three of the MMs—CLS Global, MyTrade and ZM Quant—stand accused of wash trading on behalf of a company/token that the FBI created for the express purpose of giving the MMs something to artificially pump.

The charged individuals face up to a couple of decades behind bars if convicted on charges of market manipulation, fraud, and conspiracy (to commit wire fraud/market manipulation/money laundering/conduct an unlicensed money transmitting business).

We’ll get to the gory details in a second, but it’s worth noting that these indictments confirm the suspicions that have always surrounded the speculative token sector. Many of the centralized digital asset exchanges that gave these MMs free rein to ply their dark arts have featured on this site in less than savory situations, and they live down to their bad reputations in these indictments.

Also, while most of the headlines surrounding these charges focus on the relatively inconsequential memecoins that were manipulated, the indictments cite instances of BTC trading volume being boosted by a factor of 16 over its legitimate volume. That may wound the delicate sensibilities of the BTC maximalists/snowflakes who choose to believe their utility-devoid token is above these shenanigans, but as they say at the poker table, read ‘em and weep.

Gotbit got bit

According to its indictment, the Belize-registered Gotbit promoted “purportedly legitimate services” on its website while “privately offering clients illegal services including market manipulation.”

In February 2022, Russia-based Gotbit execs Fedor Kedrov and Qawi Jalili, Robo Inu’s Vy Pham, and other unidentified co-conspirators created a private chatroom on the Telegram messaging platform.

Messages gleaned from this chatroom include Pham telling Gotbit to “slowly increase the volume” of Robo Inu token trades so it would be “trending on cmc” (token price tracker CoinMarketCap). Gotbit staff responded by saying they would do this “gradually” to make it look as if the demand was “organic.”

In January 2023, Gotbit was told to boost Robo Inu’s volume on the Bitmart exchange to “above 1.1mil daily,” to which Kedrov responded, “Sure, will be done.” Another Gotbit staffer warned against raising the volume by too much too quickly “because CMC itself can detect suspicious activity in the market and exclude volumes from bitmart.”

Similar discussions continued through the spring of 2024, including Pham telling Gotbit staff that “the basic goal right now is to create that FOMO [fear of missing out] by looking as organic volume.” Jalili responded affirmatively, saying, “we have good connections with Bitmart.”

When Pham requested an “official agreement” detailing the manipulation, Jalili reminded Pham that certain jurisdictions are “kinda regulated […] we’re not going to be having those things very clearly stated.”

Nonetheless, a contract was duly drawn up, stipulating that Gotbit would perform the desired tasks, for which it would receive $15,000 for three months of activity on a single exchange, plus 20% of the net profit generated by the fraudulent trades, and 2% of the token liquidation generated.

An FBI agent’s affidavit details an August 2019 YouTube interview in which Gotbit founder/CEO Aleksei Andriunin said he’d developed code to artificially inflate the trading volume of tokens to have these tokens graduate to trading on larger exchanges.

Andriunin kept business records detailing Gotbit’s “created volume” of certain tokens vs. their actual volume. In one 285-day period between November 2018 and August 2019,  the ‘created’ volume of the BTC token on behalf of Gotbit clients was 16x higher than its actual volume. Similarly, garish discrepancies were tracked for multiple other tokens, including BNB, the in-house token of the Binance exchange.  

This was a lucrative activity, as the FBI tracked over $42 million in transfers to a Gotbit digital wallet since September 2022. Millions of these dollars were later transferred to Andriunin’s personal Binance account and then transferred off the exchange to other wallets under Andriunin’s control.

In that YouTube interview, Andriunin fully acknowledged that Gotbit engaged in wash trading and scoffed at potential repercussions, saying Russia lacked specific crypto laws and that Andriunin didn’t work on any projects in the U.S. But in 2022, Andriunin posted a tweet saying the Gotbit “team has already stormed into the US to actively participate in” a New York crypto conference. The following year, Andriunin celebrated Gotbit launching an ‘Accelerator’ in California.

Saitama drama

Gotbit later performed similar pumps for the Saitama token on the Lbank and XT.com exchanges, helping to boost Saitama’s overall market cap to around $7.5 billion.  

The Saitama indictment contains Telegram messages from July 2021 in which Saitama manager Russell Armand discusses plans to “create an illusion of massive buys and new holders as [Telegram] gets flooded” that will “incite ppl to buy more.”

Armand instructed other Saitama executives involved in this deception to buy “2-3T per transaction, not big chunks. W[e] want list of small buys to look like it’s mor[e] buyers.” After this was done, Armand stated “If nothing else we did create hype and added holders.”

By 2023, Saitama had enlisted Gotbit’s help in pumping the token. Throughout, Saitama execs were dumping their tokens on unsuspecting retail suckers, generating “tens of millions of dollars in proceeds.”

In May 2024, FBI agents posing as investors from a crypto firm met with an LBank employee, who told the agents the exchange could (in the agent’s words) “introduce cryptocurrency companies to MMs and that the MMs can increase the trading volumes of cryptocurrencies.”

The following month, the same LBank staffer explained how MMs like Gotbit could “generate volume through wash trades,” after which the agents set up a Telegram group chat with the LBank staffer and a Gotbit employee.

ZM Quant: Pumping ‘pretty easy’

The incestuous nature of these crypto crimes means the indictment against the British Virgin Islands-based ZM Quant Investment loops in many of the same characters/companies. But there are a few details worth describing in depth.

The DoJ says ZM Quant earned over $3 million in two years starting in 2022 by manipulating certain tokens on centralized exchanges—including, yet again, Bitmart—on behalf of their issuers.

In a Telegram chatroom focused on token issuer VZZN, ZM Quant staffer Ruiqi Liu (aka Ricky Lau) provided VZZN with information most definitely not featured on ZM’s public website. This included rates for “creating volume” on decentralized exchanges Uniswap and Pancakeswap, as well as the use of a “trading bot” to “create volume” and provide “a good and continuous candle chart.”

In March 2024, Liu told Saitama executives that pumping tokens on Uniswap was “pretty easy,” involving up to “two thousand wallets,” each of these transacting “maybe ten times each hour or ten times every minute.” Once an artificially inflated token “hit the top gainer on Uniswap the users will come to trade […] they will chase the price.”

That same month, Liu told Saitama executives that ZM Quant would coordinate to “cash out at the peaks,” i.e., sell the pumped-up tokens at their highest price to retail suckers. Liu claimed to be coordinating this activity for multiple token issuers.

Into this fine mess walked the undercover FBI agents with their stated plans to launch their own Ethereum-based project and token ‘NexFund AI.’ A new Telegram group was formed, and in April 2024, ZM Quant executive Baijun ‘Eric’ Ou submitted a ‘service agreement’ for the undercover agents to peruse.

Liu suggested they first launch NexFund AI on an Ethereum ‘test net,’ and over 300 ‘test trades’ were conducted between May 23-30. On May 31, Liu sent a list of the wallets ZM Quant would use to pump the token on Uniswap, clarifying that “for 100k volume, we make 1000 transactions,” each of which “will cost about $3.”

Uniswap traders began trading the NexFund AI token that same day using the ZM Quant wallets. The fake trades continued until the FBI “disabled” the token’s trading function prior to dropping the indictments.

CLS Global creates the FOMO

ZM Quant wasn’t the only MM to which the feds took their honeytrap token. The UAE-registered CLS Global’s indictment shows that it connected with the undercover agents in June 2024 based on a referral from an LBank staffer. CLS staffer Andrey Zhorzhes joined a Telegram group populated by “several purported NexFund AI promoters.”

In July, Zhorzhes told the promoters that CLS could provide “volume creation” via “an algorithm” that directed multiple wallets to “self-trade” in a way that “looks like organic buying and selling that is happening.” (For instance, CLS promoted $DADDY, the token issued by professional misogynist Andrew Tate.)

Zhorzhes promised this system was “very hard to track … We’ve been doing that for many clients.” Putting all his cards on the table, Zhorzhes said, “I know that it’s wash trading and I know people might not be happy about it.” Again, Zhorzhes said the goal was “to create the FOMO.”

Zhorzhes suggested that CLS could help NexFund AI “meet exchange requirements” for token listing. Zhorzhes later humble-bragged about getting a client’s token listed on KuCoin while helping another customer elevate their token from the now-defunct Bittrex to Binance.

On July 4, Zhorzhes sent the NexFund AI promoters a ‘license agreement,’ and the bogus trading began on Uniswap on August 23. By August 30, there’d been over $210,000 in trading volume, of which less than $8,000 was “organic volume.” On September 5, the feds shut down the token’s trading function.

MyTrade’s mastermind

The NexFund AI trap also ensnared the BVI-registered MyTrade, which had deals with centralized exchanges, including (who else?) Bitmart, Bibox, and the now-defunct BTCEX, as well as numerous decentralized exchanges.

MyTrade was a little more blatant than the others, with its ‘Volume Support’ service openly promising token issuers the ability to “specify daily minimum and maximum trading value and the bot will trade randomly within this range with no loss besides exchange trading fees.”

MyTrade’s ‘Self Trade’ feature—aka wash trades—generated trades between a client’s token and Tether’s USDT stablecoin. (C’mon, you didn’t think we’d get through a crypto crime story without a Tether reference, did you?)

Founder Liu ‘David’ Zhou aka ‘DZ’ bragged to the undercover feds that he was the “mastermind” behind MyTrade and openly promoted his ‘volume bot’ as perfect for executing “pump and dumps.” But DZ chose to view his criminality as altruism, saying his wash trades helped “solve the cold start problem.”

DZ praised decentralized exchanges for their ability to “show that there is continuous trading activity every hour on Ethereum … instead of nobody trading for the whole day.”

MyTrade even provided (for a price) advice on how to conduct more lucrative pump-and-dumps. DZ said the whole strategy behind MMs like his was finding “other buyers from the community, people you don’t know about or don’t care about,” on whom to dump these worthless digital Beanie Babies.

The cynical prick said he could create a trading volume that “looks like really nice roller coaster ride, and that’s where sometimes people jump in … but we have to make them lose money in order to make profit and get the listing fee back.”

The feds say that on a single day (October 2), MyTrade “made millions of dollars’ worth of wash trades for approximately 60 clients until the bots were deactivated at the direction of law enforcement.”

Illegitimi non carborundum

Some of the individuals cited above have already entered their guilty pleas, while those outside the reach of U.S. authorities and their counterparts in extradition-friendly jurisdictions remain at large—and likely to re-offend.

There’s far more to this sordid tale—we haven’t even mentioned the civil complaints filed against CLS, Gotbit, ZM Quant, Saitama, and Robo Inu by the Securities and Exchange Commission (SEC). But we think you get the picture.

It’s not a pretty picture. But it’s what you get when blockchain backers prioritize short-term profits over long-term utility. It’s funny how much angst has been generated by the recent HBO documentary claiming to have uncovered the real-world identity behind Satoshi Nakamoto, the pseudonymous creator of Bitcoin.

Satoshi’s writing leaves no doubt that he/she had bigger plans for enterprise blockchain technology than issuing chips in a rigged crypto casino. ‘Crypto’ may have been taken over by hucksters from the Star Wars cantina, but there are a few of us who still honor Satoshi’s vision of a world-beating technology.

So, take that famous mock Latin phrase to heart, and don’t let these wash trading, price-manipulating, pump-and-dumping, retail-screwing bastards get you down.

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