US Charges Gotbit and Other Market Makers with Cryptocurrency Manipulation

Federal prosecutors in Boston have filed “the first-ever criminal charges against financial companies for manipulating the crypto market and engaging in wash trading.” 

Eighteen individuals and organizations stand accused of large-scale fraud and market manipulation in the cryptocurrency sector, including executives from market-making firms Gotbit, ZM Quant, CLS Global, MyTrad, and several crypto projects.

Four defendants have pleaded guilty, and another has agreed to do so. Three individuals were arrested in Texas, the United Kingdom, and Portugal. Authorities have seized over $25 million in cryptocurrency and deactivated trading bots responsible for wash trading in approximately 60 digital assets.

On October 8, 2024, Alexey Andryunin, the 26-year-old founder and CEO of the well-known crypto market maker Gotbit, was arrested in Portugal and is awaiting extradition. Top executives of the company, Kavi Jalili and Fedor Kedrov, are also charged. 

It is alleged that from 2018 to 2024, the firm provided services for market manipulation and wash trading to several crypto companies, including those based in the United States. 

In 2019, Andryunin publicly discussed his services, stating that the company was willing to inflate trading volumes for a fee.

According to the indictment, the defendants artificially inflated trading activity to create the appearance of active trading, which “helped position tokens as good investments.” These deceptive practices allegedly attracted new buyers, leading to asset price increases. The defendants then sold their tokens at high prices.

Crypto companies hired market makers for wash trading in exchange for a fee. The goal was to find other buyers and compel them to purchase tokens at inflated prices, noted one of the defendants who pleaded guilty.

The manipulated tokens included Robo Inu, VZZN, and SAITAMA.

“This investigation, the first of its kind, has uncovered numerous fraudsters in the cryptocurrency industry. Wash trading has long been prohibited in financial markets, and cryptocurrency is no exception. This is a case where innovative technology — cryptocurrency — meets a century-old scheme — Pump & Dump. Today we declare that if you make false statements to deceive investors, it is fraud. Period. Our office will aggressively pursue fraud, including in the cryptocurrency industry,” commented Acting United States Attorney Joshua Levy.

Charges of market manipulation carry a potential sentence of up to 20 years in prison, up to three years of supervised release, and a fine of up to $5 million or twice the gross gain/loss from the crime, as well as asset forfeiture. Several other charges carry similar penalties.

FBI Creates Its Own Token

During the investigation, agents from the Federal Bureau of Investigation (FBI) created an Ethereum-based token called NextFundAI. It was used to “identify, disrupt, and prosecute alleged fraudsters,” according to a press release. 

According to court documents, the asset is considered a security. An FBI representative noted that there was limited trading activity, without providing details on whether the agency worked with any crypto companies as part of the project. 

NextFundAI was positioned as a token that “channeled fees into early-stage AI projects, fostering innovation and generating profits.” 80% of investment proceeds were promised to be distributed among asset holders in USDT. 

Experts at Lookonchain discovered that the wallet which funded the creation of NexFundAI also manipulated the token SAITAMA mentioned in the case, earning over $11 million from it. 

The #FBI launched a token named #NexFundAI as “bait” to catch market manipulation.

On-chain data shows that a wallet that manipulated $SAITAMA to earn more than $11M once funded the NexFundAI deployer with 0.01 $ETH. #Saitamainu

The manipulator wallet spent only $7,357 to buy… pic.twitter.com/IeFstAdBLd

— Lookonchain (@lookonchain) October 10, 2024

SEC Charges

In parallel with the Boston prosecutor’s office, the U.S. Securities and Exchange Commission charged three companies “posing as market makers” and nine individuals for participating in schemes to manipulate the markets of various crypto assets. 

According to the charges, Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vi Pham hired ZM Quant and Gotbit for market manipulation, which included creating artificial trading volumes and manipulating crypto asset prices. CLS Global engaged in similar activities. 

The regulator seeks injunctive relief, disgorgement of ill-gotten gains with interest, and civil penalties for the defendants.

What Market Participants Can Expect

In a comment to ForkLog, Exved CEO Sergey Mendeleev noted that “everyone involved in such activities should be concerned.” 

“[…] Many exchanges and funds offer Pump & Dump services. Essentially, it’s one of the foundations of the business. Have you ever wondered about the number of useless coins and tokens? Essentially, it’s a legalized casino without taxes and regulators, with easy entry without strict AML and the ability to play with money hidden from the state. It won’t affect legal white crypto, but for those expecting a new altseason, I would advise reconsidering their views. It could be like with NFTs — the series won’t be renewed,” he noted. 

As for the potential punishment for the accused, the sentences could be severe.

“Undoubtedly, the guys got themselves into a very bad situation, and the FBI prepared this operation thoroughly (they even launched their own token, which is quite an idea!). It’s important to understand that in America, insider trading and market manipulation are crimes almost more serious than drug trafficking. The fight against so-called white-collar crime is well-established there. If the case goes to a jury trial, the sentences will be huge […]”, added the expert. 

The high likelihood of Gotbit being held accountable was noted by Andrey Tugarin, founder of the legal firm GMT Legal.

“[…] There is a category of professional market makers conducting legal activities, and there are speculative ones who influence the market for their own interests and break the law […]. Speculative market makers, who most often operate on decentralized platforms, engage in market manipulation, which is a crime. In the case of Gotbit, the likelihood of being held accountable is quite high, as they acted in their own interests […].”, he noted. 

Back in June, Gotbit dumped the meme token WATER by 70% and posted about it on X.