DOJ Created NexFundAI Crypto Firm in Crypto Scamming Sting – Source: securityboulevard.com

Federal investigators created a fictional company and cryptocurrency to ensnare individuals and entities that were illegally boosting the value of crypto tokens and then selling them at the inflated prices.

In all, the Justice Department (DOJ) charged 18 people and organizations in connection with “wash trading” cryptocurrency, with some of the operations dating back as far as 2018 and running into this year.

Along with the charges against the people and their companies, the DOJ also seized more than $25 million in crypto and deactivated multiple trading bots that were used to wash trade millions of dollars in about 60 cryptocurrencies.

According to the DOJ, the accused individuals created cryptocurrency companies and then made false statements about their tokens and ran sham trades in those tokens – which investigators called “wash trades” to – to create the appearance of trading activity to make it look as though their tokens were good investments.

That attracted new investors and buyers, which then increased the tokens’ trading prices. The accused then sold their tokens at these artificially inflated prices, with the largest of their companies, Saitama, at one point reaching a $7.5 billion market value.

Pumping, Dumping, and Making Markets

The fraudulent crypto companies also hired financial services firms, known as “market makers,” to trade their tokens. According to one defendant with a market maker who agreed to plead guilty, the goal of these companies was to find buyers from the crypto community who they didn’t know or care about because the end game was ensuring the other buyers lost money so the market makers could make a profit.

“Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception,” Acting U.S. Attorney Joshua Levy said in a statement. “These are cases where an innovative technology – cryptocurrency – met a century old scheme – the pump and dump. … These charges are also a stark reminder of how vigilant online investors must be and that doing your homework before diving into the digital frontier is critical.”

People investing in cryptocurrency need to understand how these scams work to protect themselves, Levy said.

NexFundAI is Created

To run the investigation, the DOJ created a fake crypto company called NexFundAI and its own token. Investigators also created a website for the company that described the token, outlined a roadmap, detailed the kinds of AI companies it wanted to invest in, and offered a way for investors to contact the company.

A description on the site said that “NexFundAI is at the forefront of redefining the intersection between finance and artificial intelligence. Our purpose is clear: to create a cryptocurrency token that not only serves as a secure store of value but also acts as a catalyst for positive change in the world of AI. In collaboration with NextFundAI [sic], we direct fees from our token towards early-stage AI projects, fostering innovation and generating returns.”

It goes on to talk about NexFundAI’s goal of being transparent, enabling investors to participate in applications developed by the company’s partners, and distributing 80% of profits from investment projects to token holders.

Market Makers on the Hook

Three market makers – ZM Quant, CLS Global and MyTrade – and their employees were charged with wash trading on behalf of NexFundAI, with some also facing conspiracy charges. Another market maker Gotbit – as well as its founder CEO, 26-year-old Aleksei Andriunin, of Russia and Portugal, and two other executives – were charged with running a similar scam. They face such charges wire fraud and conspiracy to commit market manipulation and wire fraud, with Andriunin also facing a charge of conspiracy to commit money laundering. He was arrested October 8 in Portugal and is facing extradition.

Between 2018 and 2024, Gotbit provided market manipulation and wash trading services to a number of crypto companies.

ZM Quant Investment is accused of offering a trading bot for market manipulation services to companies and, along with two employees from Hong Kong – Riqui Liu and Baijun Ou – were indicted for wire fraud and conspiracy to commit market manipulation and wire fraud. NexFunAI and Saitama were among the companies ZM Quant provided services to.

Andrey Zhorzhes and his company, CLS Global FZC, face similar charges. Zhorzhes, of the United Arab Emirates, allegedly advertised his business as having an algorithm that autonomously trades that were difficult to track. He also wrote that the idea is to pump up the volume of trades “so the token looks organic and looks live and people get interested in trading it. … I know that it’s wash trading and I know people might not be happy about it.”

Liu Zhou, from China and Canada, founded MyTrade to run similar pump-and-dump and wash trade schemes via a dashboard on the company’s website, the DOJ said.

Crypto Companies and Employees Charged

Investigators also charged four crypto companies – Saitama, Robo Inu Finance, VZZN, and Lillian Finance – and nine founders and employees at the organizations with a range of crimes, including market manipulation, wire fraud, operating an unlicensed money transmitting business, and conspiracy. Two of those charged also were indicted for their connections to two of the companies. One, 32-year-old Vy Pham of California, faces charges in connection with Saitama and Robo Inu Finance, which she created after leaving Saitama in 2021.

In addition, Russell Armand, 42, of Texas, launched VZZN after he left Saitama last year.

Those charged come from a number of countries. U.S. residents indicted included not only Pham and Armand but also Max Hernandez, of Massachusetts, who worked at Saitama, Michael Thompson of Virginia, who worked at VZZN, and Bradley Beatty, a Florida resident who founded Lillian.

Saitama was incorporated in Massachusetts in 2021 and the companies and individuals were charged in U.S. District Court in Boston.