The FBI secretly created an Ethereum token to investigate cryptocurrency fraud.
The agency described it as a "new twist on traditional financial crime."
The FBI developed an Ethereum-based token called NexFundAI as part of an inquiry into price manipulation in cryptocurrency markets, according to government statements on Wednesday. This token was created with the collaboration of "cooperating witnesses."
The investigation led the Securities and Exchange Commission to charge three "market makers" and nine individuals who allegedly participated in schemes to inflate the prices of certain digital assets. Additionally, the Department of Justice charged 18 individuals and entities with "widespread fraud and manipulation" in the cryptocurrency space.
The defendants allegedly made false claims about their tokens and engaged in transactions known as "wash trades" to create the illusion of an active market. The three market makers involved—ZMQuant, CLS Global, and MyTrade—were said to have conducted these operations or conspired to do so on behalf of NexFundAI, without knowing that this token was created by the FBI.
Jodi Cohen, special agent in charge of the FBI's Boston division, stated that "what the FBI revealed in this case is essentially a new twist on traditional financial crimes." She added that this investigation resulted in charges against the leadership of four cryptocurrency companies, as well as against four "market makers" and their employees, who allegedly led a sophisticated trading scheme that purportedly defrauded honest investors out of millions of dollars.
Liu Zhou, a "market maker" linked to MyTrade MM, allegedly told promoters of NexFundAI that his company was superior to the competition because it "controls the pump and dump," which allowed them to engage in "insider trading" with ease.
An FBI spokesperson commented that trading activity around this token was limited, although no further details were provided. During a press conference, Joshua Levy, acting U.S. Attorney for the District of Massachusetts, confirmed that transactions involving the token had been disabled. Furthermore, it is reported that the Department of Justice has secured $25 million in "fraudulent gains" that will be returned to investors.