The FBI has created an Ethereum-based token, dubbed “NexFundAI,” to identify and track fraudulent activities in the cryptocurrency space. The agency has successfully used this strategy to expose 18 individuals and entities involved in market manipulation and fraud.
So now we know – NexFundAI is a security token based on the Ethereum blockchain which the FBI used to lure and expose cryptocurrency fraudsters.
“The FBI took the unprecedented step of creating its very own token and company to identify, disrupt, and bring these alleged fraudsters to justice,” Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, said.
Looks A Lot Like Entrapment
The list of fraudsters includes four major cryptocurrency firms, Gotbit, ZM Quant, CLS Global, and MyTrade. These entities were accused of engaging in market manipulation and fraud, specifically through practices like wash trading and pump-and-dump schemes.
The FBI, through its NexFundAI token, reportedly engaged with the firms under the guise of legitime business. The undercover approach allowed them to collect evidence on how these companies manipulated token prices and trading volumes.
The FBI operation, known as “Operation Token Mirrors,” has uncovered fraudulent practices involving more than 60 different tokens, including the Saitama Token, which once hit a market cap of $7.5 billion.
As detailed, the accused parties performed numerous deceptive tactics, like making false claims and executing sham trades to inflate token prices before selling off their holdings at peak values.
Crypto companies like ZM Quant and Gotbit were hired to carry out wash trades, where they executed sham trades using multiple wallets to conceal their activities and create fake trading volume.
Enforcement On The Rise
Authorities reportedly seized over $25 million in cryptocurrency and shut down trading bots that facilitated millions in fraudulent trades as part of the investigation. Several defendants have already pleaded guilty, with arrests made in the US, the UK, and Portugal.
As reported, Manpreet Kohli, CEO of Saitama, was arrested in the UK. Five current or former employees of the company were also charged, with three having already pleaded guilty.
Aleksei Andriunin, CEO of Gotbit, was arrested in Portugal. Andriunin and two of his employees in Russia were charged with engaging in wash trading from 2018 to 2024 to artificially inflate trading volumes for various cryptocurrency clients.
The operation marks not only one of the first criminal prosecutions for crypto market manipulation by the Department of Justice, but also a major step in law enforcement’s efforts to combat digital asset fraud using the undercover tactic.
Cryptocurrency scams are under the FBI’s radar. The agency recently arrested two individuals involved in a $230 million crypto fraud scheme. The suspects, a Singaporean and a US citizen, allegedly stole over 4,100 Bitcoin from a Washington D.C. victim using sophisticated social engineering tactics.
The duo then attempted to launder the stolen assets using peel chains and VPNS. After successfully conducting money laundering, they used the proceeds for luxury goods and experiences, which ultimately drew authorities’ attention.
Earlier this month, the FBI issued a warning about North Korean hackers aggressively targeting the cryptocurrency sector, particularly focusing on U.S. cryptocurrency exchange-traded funds (ETFs).
According to the agency, North Korean hackers are employing sophisticated social engineering techniques to infiltrate organizations in the cryptocurrency industry. These include extensive pre-operational research on potential victims, often leading to personalized scams involving fake job offers or investment opportunities.
The FBI added that the attackers aim to deploy malware to steal digital assets from decentralized finance (DeFi) platforms and other cryptocurrency entities. They often impersonate trusted contacts and engage in prolonged conversations to establish trust before executing their malicious plans.
Based on their observations, the FBI noted that these threat actors have conducted research on targets linked to cryptocurrency ETFs, a sign that they could escalate attacks against these financial products.
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