U.S. authorities allege that promoters duped retail investors into buying cryptoassets, by using market manipulation schemes to create the illusion of an active market for these assets.
The U.S. Securities and Exchange Commission (SEC) filed civil fraud charges against nine people and three companies that, it alleged, manipulated the markets for various cryptoassets sold to retail investors.
Two of the firms — ZM Quant and Gotbit — provided “market-manipulation-as-a-service,” the SEC said, to generate artificial trading volume or to manipulate the price of cryptoassets.
One of the cryptoassets they sought to manipulate was created by the FBI as part of its investigation into potential market manipulation in the cryptoasset industry, the SEC said.
In a parallel criminal case, the U.S. attorney’s office for the District of Massachusetts brought various charges involving alleged market manipulation and wash trading in the crypto sector.
It said four defendants pleaded guilty (including a Canadian resident), another agreed to plead guilty, and three others were arrested in Texas, the U.K. and Portugal.
“More than US$25 million in cryptocurrency has been seized, and multiple trading bots responsible for millions of dollars’ worth of wash trades for approximately 60 different cryptocurrencies have been deactivated,” the U.S. attorney reported.
“This investigation, the first of its kind, identified numerous fraudsters in the cryptocurrency industry,” said acting U.S. attorney Joshua Levy in a release.
“Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception. These are cases where an innovative technology — cryptocurrency — met a century-old scheme — the pump and dump,” he said.
The SEC’s allegations have not been proven, although three individuals agreed to settlements, which are subject to court approval, that ban them from further violations and impose conduct-based injunctions. The court will determine any financial sanctions (penalties and disgorgement) in those cases.
“We remain concerned about the ease with which the market for a cryptoasset can be manipulated and are committed to rooting out instances of such misconduct when it involves securities,” said Jorge Tenreiro, acting chief of the SEC enforcement division’s cryptoasset and cyber unit, in a release.