U.S. federal authorities, including the Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), and the Department of Justice (DOJ), have launched a coordinated crackdown on fraudulent crypto firms. The investigation targeted a network of overlapping entities, individuals, and alleged criminal activities.
Charges Filed Against Market Makers and Individuals
On October 9, the SEC filed civil suits in the District Court of Massachusetts against three crypto market-making firms: Gotbit Consulting, ZM Quant Investment, and CLS Global. The charges include fraud and market manipulation. In addition to the companies, nine individuals have been charged. The DOJ and FBI also participated in the investigation.
Allegations: Market Manipulation and Fraudulent Securities Offerings
Gotbit Consulting and its marketing director, Fedor Kedrov, face accusations of manipulating the market through wash trading, a practice where trades are executed internally to create an illusion of market activity. The allegations involve promoting cryptocurrencies like Saitama and Robo Inu, projects led by Vy Pham, a Vietnamese national residing in California. Pham faces multiple charges, including unregistered securities offerings, fraud in both the sale and purchase of securities, and market manipulation.
Four additional individuals connected to Pham have also been charged on similar grounds. Pham and two of her associates have agreed to bifurcated settlements, meaning components of the charges will be resolved separately.
Other Firms and an FBI Sting Operation
The other two firms—ZM Quant Investment and CLS Global—face nearly identical charges for their involvement with a cryptocurrency called NexFundAI, which was, in fact, created as part of an FBI sting operation. These companies, along with four of Pham’s associates, are also linked to another crypto asset called SaitaRealty.
An International Effort to Prosecute
The investigation has revealed a global network. Kedrov is reportedly based in Russia, while ZM Quant executives are located in London and Hong Kong. Additionally, one of the four individuals named in the separate suit resides in India. Despite the geographical spread, the SEC is pursuing:
- Permanent injunctions and conduct-based injunctions
- Disgorgement of allegedly illegal gains plus interest
- Civil penalties against all defendants
- Officer and director bans for certain individuals
The FBI released a statement identifying more cryptocurrencies under investigation, including Saitama, SaitaRealty, SaitaChain, Robo Inu, VZZN, Lillian Finance, and NexFundAI.
DOJ Expands the Investigation
The DOJ has charged a total of 18 individuals and one additional company, MyTrade MM, which provided services related to NexFundAI. Founders of the VZZN and Lillian Finance cryptocurrencies have also been charged. The DOJ highlighted that while the founder of VZZN has ties to Saitama, there are no further connections between these coins and the broader investigation.
The joint efforts of the SEC, FBI, and DOJ aim to dismantle fraudulent crypto operations and hold those involved accountable. This case demonstrates the U.S. government’s commitment to addressing illegal activities in the cryptocurrency sector and ensuring market integrity.
