U.S. authorities, including the Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Department of Justice (DOJ), have charged Gotbit and four other crypto firms with widespread market manipulation.
The charges also roped in several individuals who worked for the offending organizations.
Market Makers Accused of Running Wash Trading Scheme
According to a statement the SEC issued on October 9, Gotbit, ZM Quant, CLS Global, and MyTrade MM used bots to inflate trading volumes on centralized exchanges (CEXs) through wash trading.
A parallel statement from the Massachusetts U.S. Attorney's office included popular meme coin projects Saitama and Robo Inu among those with complaints issued against them.
The SEC claims that the named companies engaged in “pump and dump” schemes, where they misrepresented the value of certain tokens, prompting new investors to buy in only to cash out at inflated prices.
In total, law enforcement officials seized $25 million in cryptocurrency. Furthermore, they deactivated bots responsible for millions of fraudulent transactions across 60 different crypto assets.
Saitama Employees Named in Complaint
Prominent names fingered in the investigations include Russell Armand, Maxwell Hernandez, and Manpreet Kohli. They and fellow Saitama employees Nam Tran and Vy Pham are accused of using Gotbit and ZM Quant to provide market manipulation services, including generating fake trading volumes for assorted cryptocurrencies.
Kohli and Tran face additional charges of conspiracy to commit wire fraud and running an unlicensed money-transmitting business.
According to the U.S. Attorney's office, Armand and Hernandez have already pleaded guilty to the exact charges as those leveled against Kohli and Tran. In addition, California-based Pham also confessed to being involved in unlawful conduct at Saitama and another unnamed crypto company.
Others indicted in the U.S. District Court in Boston include Gotbit's Aleksei Andriunin, Fedor Kedrov, and Qawi Jalili, as well as Riqui Liu and Baijun Ou of ZM Quant.
The investigation, which began in 2017, uncovered that the suspects used bots to create quadrillions of fake transactions, amounting to billions in artificial trading volume daily. These activities caused unsuspecting retail investors to buy tokens at inflated prices, only to suffer massive losses when Gotbit and its co-accused firms dumped their holdings.
A crucial turning point in the investigation came when the FBI created a cryptocurrency called NexFundAI to gain access to the inner workings of the market-making firms.
NexFundAI, which was still actively trading at the time of this writing, with a market cap of around $237,000, was designed to appear as a legitimate project linking crypto and AI. It seemed to have worked as intended, attracting the market manipulators who believed they could exploit it.