FBI Creates Token Project In Trojan Horse Crypto Operation That Seizes $25 million

On October 18, the U.S. Attorney’s Office for the District of Massachusetts announced charges against 18 individuals and entities for their involvement in cryptocurrency-related fraud and market manipulation. As a result of the investigation, over $25 million in cryptocurrency was seized, and several trading bots facilitating wash trades were shut down. 

These defendants, including executives from cryptocurrency companies, market-making firms, and their employees, face allegations of engaging in fraudulent practices that manipulated trading volumes and token prices. The investigation exposed schemes where these entities reportedly created artificial trading activity for various cryptocurrencies, misleading investors and generating substantial illicit profits.

Operation Token Mirrors: The FBI’s Undercover Creation of NexFundAI

In an unprecedented move, the FBI set up a covert cryptocurrency service called NextFundAI as part of Operation Token Mirrors, allowing federal agents to infiltrate the network of market makers involved in the wash trading scheme. The FBI's approach was to act as potential clients, using NextFundAI as a tool to uncover the mechanics behind market manipulation in the cryptocurrency industry. Through the fake company, FBI agents engaged in conversations with key individuals at the market-making firms, gaining insights into the services they offered and observing their operational methods in real-time. 

To carry out the operation, the FBI created a comprehensive, legitimate-seeming token infrastructure to attract potential criminals. Publicly marketed as a “security token,” NextFundAI was designed to appeal to groups looking to exploit its perceived investment value, allowing investigators to monitor and record fraudulent patterns. By integrating NextFundAI into the ecosystem, the FBI was able to observe market makers and traders involved in wash trading and pump-and-dump tactics firsthand.

Here’s a breakdown of how this undercover operation worked:

1. Controlled Token Supply and Market Positioning: The FBI held back a significant portion of the NextFundAI token supply to limit accessibility, making it appear highly desirable. This setup allowed agents to track token transfers and identify patterns indicating fraudulent activity.
2. Monitoring Simulated Manipulation Tactics: Using the NextFundAI token, market makers involved in the scheme used wash trading to inflate perceived market activity. The FBI tracked these trades, documenting instances where the token’s popularity was artificially manipulated to attract unsuspecting investors.
3. Tracking Pump-and-Dump Schemes: Once activity around NextFundAI had been sufficiently inflated, certain traders would promote it as a “hot” investment before abruptly selling off large amounts. This artificial price surge, followed by a rapid dump, led to significant losses for regular investors—meanwhile, the FBI gathered data at every step.

By integrating NextFundAI into the market, the FBI not only identified individual players involved in the manipulation but also gained insight into the mechanics of widespread crypto fraud. This case has set a precedent for how undercover operations can combat financial crimes in digital markets.

‍

‍

Market makers, including firms such as CLS Global, ZM Quant, and MyTrade MM, allegedly provided detailed explanations on how they used trading bots to create “wash trades.” These wash trades, executed on various cryptocurrency exchanges, created the illusion of liquidity and trading volume by trading the same assets back and forth. According to recorded conversations and court documents, one CLS Global representative even explained that their proprietary algorithm could generate self-trades to maintain an active appearance on exchange order books. By setting this activity up to look organic, market makers could increase perceived demand for tokens, drawing in real investors who would unknowingly buy inflated assets.

Details of the Fraudulent Schemes and Tactics Used

The charging documents allege that these market makers worked for multiple cryptocurrency companies, artificially inflating the tokens’ values and trading volumes, sometimes using the same exchange wallets. The intent, according to prosecutors, was to create an impression of high market demand, drawing in other investors who would unknowingly buy assets at inflated prices. Once the token prices rose due to genuine buying activity, the accused would sell off their holdings at a profit—a tactic commonly referred to as “pump-and-dump.”

The primary cryptocurrency companies involved, including Saitama LLC and Robo Inu Finance, allegedly hired market makers to implement these manipulative trading schemes. Saitama, for example, purported to offer innovative financial services but, in reality, its leadership was reportedly orchestrating small coordinated purchases to inflate prices while simultaneously claiming not to manipulate the market. Executives used various Telegram chats to coordinate purchases and spread small trades across wallets to avoid detection, according to the indictment. Additionally, Gotbit, another market maker, purportedly used complex tracking sheets to monitor both created (fake) and natural market volumes, ensuring their wash trading tactics remained effective.

Major Arrests and Seizures

The operation led to several high-profile arrests. Notably, Gotbit’s CEO, Aleksei Andriunin, was apprehended in Portugal. Andriunin, along with other Gotbit executives, had been providing wash trading services since 2018, profiting tens of millions from clients. At Saitama LLC, CEO Manpreet Kohli was arrested in the UK, where he awaits extradition to the United States. Saitama was reported to have a peak market valuation of over $7.5 billion, and prosecutors allege that the company’s executives used misleading claims to deceive investors while profiting from manipulated token trades. Other key arrests included ZM Quant employees, who allegedly promoted wash trading services to clients over video calls, explaining that they could use “multiple wallets” to make trading appear legitimate. As a result of this investigation, over $25 million in cryptocurrency was seized, and several trading bots facilitating wash trades were shut down. 

Aftermath

As if this case could get any more interesting, on October 9th, 2024, the day that the DOJ press release was published and online media picked up the story, an unknown individual created a fictitious, imposter token which resembled the undercover FBI token, NextFundAI. This new imposter token, called “NexFund” initially used approximately 1.4 ETH ($2,300) to create 420,690,000,000 ‘NexFund’ tokens. The “NexFund” tokens were pumped up in the next 24 hours, enabling the creator to swap them back to ETH and cash out over 52 ETH ($127,000), on October 10, at an international exchange.