SEC, FBI, and DOJ target 3 fraudulent crypto firms in multi-agency crackdown

The Securities and Exchange Commission charged three market makers and their employees for wash trading and market manipulation.

The three crypto firms are accused of fabricating trading volumes and falsifying trading prices to mislead investors and give the appearance of an active trading market. 

The Justice Department and the FBI also investigated the firms for fraudulent schemes.

The SEC sued three crypto firms in the District Court of Massachusetts

The Securities and Exchange Commission filed civil suits with the District Court of Massachusetts, charging three crypto market makers with fraud. The three crypto firms, ZM Quant, Gotbit, and CLS Global, allegedly manipulated crypto prices and trading volumes to lure investors. 

Promoters like Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, and Vy Pham are believed to have sought manipulation services from market makers ZM Quant and Gotbit in manipulating markets. 

According to the SEC, the two firms typically used artificial intelligence to falsify trading volumes and inflate trading prices for crypto assets. The involved promoters would then later sell the crypto assets as securities to retail investors in off-the-books transactions.

ZM Quant and CLS Global also used similar tactics in manipulating the market for a crypto asset created under the guidance of the Federal Bureau of Investigation as part of its investigation.

Baijun Ou, Ruiqi Lau, Fedor Kedrov, and Andrey Zhorzhes employees in the three firms are also believed to engage in wash trading or use algorithms to create falsified transactions and billions of dollars of artificial trading volumes daily.

SEC’s Deputy Director of the Enforcement Division cautions investors

Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement division, noted that the enforcement actions against ZM Quant, CLS Global, and Gotbit reveal the underlying victimization of retail investors by multiple players in the crypto industry.

He encouraged investors to exercise caution, noting that numerous crypto promoters and active markets aim to lure them with deceptive promises.

Jorge G. Tenreiro, Acting Chief of the Division of Enforcement’s Crypto Asset and Cyber Unit, even commented:

We remain concerned about the ease with which the market for a crypto asset can be manipulated and are committed to rooting out instances of such misconduct when it involves securities. The wrongdoers behind these schemes are profiting handsomely at the expense of investors that have been deceptively lured into these markets and lost their hard-earned savings.

~ Jorge G. Tenreiro