The FBI created its own cryptocurrency company and crypto token to trade fraudsters who will make false trades to inflate the price before cashing out, according to a press release from the US Department of Justice. The FBI’s operation, called Operation Token Mirrors, was unprecedented in the crypto space and 18 individuals and organizations were charged with alleged fraud and forgery in indictments announced on Wednesday.
Three firms, ZM Quant, CLS Global, and MyTrade, are alleged to have offered their services to participate in the so-called laundering trade of the FBI’s crypto token, along with about 60 other coins, to make it appear that there is great interest. A fourth company, Gotbit, allegedly conducted similar trades on the watch but did not trade the FBI’s dedicated token. Laundering trades were carried out using “multiple trading bots,” according to the DOJ, which have since been shut down, and at least $35 million in crypto was seized.
The crypto and token company created by the FBI was called NexFundAI and was built on the Ethereum blockchain. The token had a dedicated website that looked like any other website created for cryptocurrencies every day, but now includes a banner at the top that reads, “This website was created under the direction of the Federal Bureau of Investigation. as part of an investigation into cryptocurrency fraud and market manipulation. For more information, please click here.” The “click here” link directs visitors to a DOJ news release about the cases.
The charges include Telegram and WhatsApp conversations between the alleged fraudsters, as well as memes and GIFs they shared about their work.
The lawsuit against Andrey Zhorzhes of CLS Global also includes excerpts from a video interview he had with the FBI (and the agency that appears under NexFundAI), where Zhorzhes explains how his company’s services work:
- “The thing we can help with is creating volume. We can help make the volume so you can meet the exchange requirements, if you apply for a phase 1 exchange.”
- “We have an algorithm that … basically does the selling, buying and selling, and the only cost you have is the gas fee and the exchange fee.”
- “We do that with multiple wallets so it’s invisible … it looks like natural buying and selling is happening … so it doesn’t look like an algo.[rithm] it’s commercial, because if it’s obvious, it doesn’t make much sense.”
- “The concept of volume generation is creating some volume in the decentralized exchange so that the token looks alive and looks live and people are interested in trading it.”
- “We do that by transferring funds to many wallets, which can be as many as you wish. . . when we buy and sell. . . and generate the specific number you want. We decide a certain number that we wish to do in a day. . . it can be 100,200,300k, it doesn’t matter, then we generate these numbers[s]… in a 24-hour period.”
- “It is very difficult to track…. We have been doing that for many clients.”
- “I know it’s a watch business and I know people might not be happy about it.”
“What the FBI uncovered in this case is a new form of old-school financial crime. ‘Operation Token Mirrors’ targets rogue token developers, promoters, and market makers in the crypto space,” said Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, in a press release. “Our findings led to the indictment of the leadership of four cryptocurrency companies, and four crypto ‘market makers’ and their employees accused of leading a sophisticated trading scheme that allegedly fleeced honest investors out of millions of dollars.”
“The FBI has taken the unprecedented step of creating its own cryptocurrency token and company to identify, disrupt, and prosecute these alleged frauds,” Cohen continued.
Of the 18 individuals and entities charged by the DOJ, so far four have pleaded guilty, and one has agreed to plead guilty. Three other defendants in Texas, the UK and Portugal were arrested this week, according to the agency.
Those charged so far include:
- Aleksei Andriunin, Fedor Kedrov, Qawi Jalili, Gotbit Consulting LLC (Gotbit)
- Riqui Liu, Baijun Ou, ZM Quant Investment LTD (ZM Quant)
- Andrey Zhorzhes, CLS Global FZC, LLC (CLS)
- Liu Zhou, MyTrade MM
- Manpreet Kohli, Haroon Mohsini, Nam Tran, Max Hernandez, Russell Armand, Vy Pham, Saitama LLC (Saitama)
- Robo Inu Finance (Robo Inu)
- Michael Thompson, VZZN
- Bradley Beatty, Lillian Finance LLC (Lillian Finance)
Will these charges deter future fraudsters? That remains to be seen. But two hours after the lawsuit was announced on Wednesday, dozens of new tokens bearing the name NexFundAI were created, according to a DexScreener search.
We’re going to guess that the crypto space will continue to be a financial Wild West with more scammers than anyone can properly count. Anyone who has bought or sold tokens from any of the companies charged, including the FBI token, is encouraged to contact the FBI as a potential victim of crime. But crypto fans point out on social media that it is too rich for the FBI to create a scam token and urge people who have been harmed by that scam to seek help from the FBI.
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