The FBI secretly created an Ethereum token to investigate crypto fraud

The FBI created the cryptocurrency as part of an investigation into price manipulation in crypto markets, the government revealed on Wednesday. The FBI’s Ethereum-based token, NexFundAI, was created with the help of “cooperating witnesses.”

As a result of the investigation, the Securities and Exchange Commission charged three “market makers” and nine individuals for allegedly engaging in schemes to inflate the prices of certain crypto assets. The Department of Justice has charged 18 individuals and entities with “fraud and widespread fraud” in the crypto markets.

The defendants allegedly made false claims about their tokens and engaged in so-called “wash trading” to create the impression of an active trading market, prosecutors said. Three market makers – ZM Quant, CLS Global, and MyTrade – are accused of laundering traders or conspiring to launder trades in the name of NexFundAI, an Ethereum-based token they did not realize was created by the FBI.

“What the FBI found in this case is a new twist on old-school financial crime,” said Jodi Cohen, special agent in charge of the FBI’s Boston Division, in a statement. “Our findings led to the indictment of the leadership of four cryptocurrency companies, as well as four crypto ‘market makers’ and their employees who are accused of leading a sophisticated trading scheme that allegedly fleeced honest investors out of millions of dollars.”

Liu Zhou, a “market maker” working with MyTradeMM, reportedly told NexFundAI promoters that MyTradeMM was better than its competitors because it “controls pump and dump” allowing them to “trade inside easily.”

An FBI spokesperson said Coindesk that there was limited trading activity in the currency but did not share more information. In a press conference on Wednesday, Joshua Levy, acting US attorney for the district of Massachusetts, said that the token trading is closed, according to the report. Coindesk.

The DOJ reportedly recovered $25 million in “fraud money” to be returned to investors.