SEC Charges Market Makers and Individuals in Crypto Fraud Case

The U.S. Securities and Exchange Commission (SEC) has charged multiple market makers and individuals with manipulating crypto asset markets, alleging they created fake trading activity to mislead retail investors.

The U.S. Securities and Exchange Commission (SEC) has announced fraud charges against three market makers and nine individuals for allegedly manipulating the markets for various crypto assets, which were offered and sold as securities to retail investors.

The SEC alleges that the defendants engaged in schemes to create false trading activity, which misled investors and violated securities laws. The regulator claims that these activities were intended to fabricate the illusion of a legitimate trading market for the crypto assets in question.

According to the SEC's complaint, which was filed in the U.S. District Court for Massachusetts, the defendants include Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham, who are accused of hiring ZM Quant and Gotbit to manipulate trading volumes.

The complaint alleges that Armand, Hernandez, Kohli, Tran, and Pham, through their respective companies, engaged in wash trading and other manipulative activities to inflate the trading volume and create the false appearance of an active market for crypto assets, which were being offered and sold as securities to retail investors.

The SEC's complaint further alleges that another company, CLS Global, also engaged in market manipulation activities, specifically related to a crypto asset that was created by the Federal Bureau of Investigation (FBI) as part of a parallel investigation.

The SEC is seeking preliminary and permanent injunctions, disgorgement of gains, civil penalties, and officer and director bans for some defendants, in addition to other relief.

The regulator's actions come amid ongoing efforts to crack down on fraud and market manipulation in the crypto industry. While the SEC has yet to classify any crypto asset as a security, the agency has maintained that it will pursue legal action against any parties found to be violating securities laws.

The SEC's broad definition of a security, as outlined in the Howey Test, encompasses a wide range of financial instruments, including crypto assets that meet the criteria of an investment contract.

In recent months, the SEC has stepped up its enforcement actions against crypto exchanges and other market participants, accusing them of failing to register with the agency and engaging in activities that harm investors.

The regulator's latest charges against market makers and individuals highlight the SEC's increasing focus on combating fraud and market manipulation in the rapidly evolving crypto landscape.

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