Operation Token Mirrors: US DoJ Announces Arrests and Charges Against Individuals and Entities in Connection with Allegedly Manipulating Digital Asset Markets

The U.S. Department of Justice (DoJ) has announced arrests and charges against several individuals and entities in connection with allegedly manipulating

The U.S. Department of Justice (DoJ) announced arrests and charges against several individuals and entities on March 23 for allegedly manipulating digital asset markets as part of a widespread fraud operation.

The law enforcement action – codenamed Operation Token Mirrors – is the culmination of the U.S. Federal Bureau of Investigation (FBI) taking the "unprecedented step" of creating its own cryptocurrency token and company called NexFundAI, according to a statement from the Securities and Exchange Commission (SEC).

NexFundAI, as per information on the website, was marketed as redefining the "intersection between finance and artificial intelligence" and that its aim was to "create a cryptocurrency token that not only serves as a secure store of value but also acts as a catalyst for positive change in the world of AI."

"Three market makers — ZM Quant, CLS Global, and MyTrade — along with their employees are charged with allegedly wash trading and/or conspiring to wash trade on behalf of NexFundAI, a cryptocurrency company and token created at the direction of law enforcement as part of the government's investigation," the DoJ said.

"A fourth market maker, Gotbit, its CEO, and two of its directors are also charged for perpetrating a similar scheme."

A total of 18 people and entities have been ensnared in the investigation's net, out of which five defendants have either pleaded guilty or agreed to plead guilty. Three other defendants have been arrested in the U.S. state of Texas, the U.K., and Portugal.

More than $25 million in cryptocurrency has also been confiscated and multiple trading bots behind wash trading (aka round trip trading), which refers to the illegal practice of buying and selling the same financial instruments to create artificial market activity, for about 60 different cryptocurrencies have been disabled.

Court documents allege that the defendants behind the cryptocurrency companies executed bogus trades using their own tokens to give the impression that they are good investments in an attempt to attract new investors and purchasers, thereby synthetically inflating the tokens' trading prices.

The individuals then sold their tokens at the new prices, a fraudulent scheme known as pump-and-dump, in order to illegally profit from the financial crime.

The following individuals and cryptocurrency firms have been charged:

"Today's enforcement actions demonstrate, once more, that retail investors are being victimized by fraudulent activity by institutional actors in the markets for crypto assets," Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement, said.

"With purported promoters and self-anointed market makers teaming up to target the investing public with false promises of profits in the crypto markets, investors should be mindful that the deck may be stacked against them."

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