Crypto News – How the FBI Used NexFundAI to Expose Crypto Fraudsters
Crypto News – In a groundbreaking move, the Federal Bureau of Investigation (FBI) created a fake cryptocurrency called NexFundAI (NEXF) to expose and apprehend alleged fraudsters involved in market manipulation. This initiative marks a significant moment in law enforcement’s approach to tackling crypto-related crimes.
The Fake Cryptocurrency Scheme
According to an indictment filed on October 7 in the Massachusetts Federal District Court, the FBI presented NexFundAI as a crypto security claiming to represent shares in an artificial intelligence-related fund. The agency reached out to scammers, seeking assistance in manipulating the token’s trading volume to mislead investors into believing the coin had higher popularity than it did.
The scammers agreed to participate in the fraud, providing the FBI with crucial evidence that ultimately led to their indictment. This case is particularly notable as it is the first instance where the FBI has openly acknowledged creating a cryptocurrency as part of its investigations.
Allegations Against Market Makers
The indictment specifically charges the MyTrade MM crypto market-making firm and its founder Liu Zhou, also known as “David Zhou,” with conspiracy to commit market manipulation and wire fraud, which could result in sentences of up to five years in prison. The FBI discovered that MyTrade MM allegedly offered guarantees for minimum and maximum trading volumes to token issuers, a practice that raises serious ethical questions.
Undercover officers met with representatives from crypto exchange LBank on August 20, where they agreed to launch the NEXF token. During subsequent meetings, Zhou detailed the firm’s use of wash trading to artificially inflate trading volumes, effectively misleading investors into purchasing tokens without genuine market interest.
The Launch of NexFundAI
The NexFundAI token was launched on or around October 2 on the LBank exchange. On that same day, MyTrade MM allegedly executed millions of dollars’ worth of wash trades for around 60 clients. Zhou has agreed to plead guilty to the charges against him, which underscores the serious implications of the case.
Simultaneously, the United States Department of Justice (DOJ) announced that 18 individuals were being charged in multiple crypto market manipulation cases, with NexFundAI being just one example. Although three co-conspirators were mentioned in the indictment, only Zhou was officially named and charged.
Is NexFundAI Linked to the BE54c Coin?
Speculation has arisen among crypto users regarding a potential connection between NexFundAI and the BE54c coin, which is located at Ethereum address 0x16ca471aE755f8a2cD4eC315A4a7439dcfEBE54c. On October 10, blockchain analytics firm Bubblemaps indicated on X (formerly Twitter) that the FBI’s launched token might be linked to BE54c.
Notably, Coinbase director J. Connor Grogan confirmed this connection, stating that the FBI used a wallet ending in bf3 to create the coin. This wallet was reportedly funded by another wallet containing a token called “Pornrocket.”
The Ambiguity of BE54c’s Origins
While the BE54c token shares the name and was created just four months prior to the FBI’s token, Arkham Intelligence data indicates no direct connection between BE54c’s deployer account and any known LBank wallet. This raises questions about whether BE54c is an imitation of the FBI token or if it may be the original NexFundAI coin.
The lack of definitive proof does not rule out the possibility that the BE54c token was indeed created by the FBI, as the existing data may be incomplete.
Ongoing Concerns About Market Manipulation
The issue of market manipulation continues to haunt the cryptocurrency space. On September 29, the Dutch regulator AFM warned token issuers that pump-and-dump schemes will be explicitly prohibited in the European UnionWhat Cryptocurrency Regulations Are Being Proposed in the European Union and How They Will Impact the Market starting December 30. Similarly, the Italian government announced heightened enforcement measures against market manipulation, with fines potentially reaching 5 million euros.
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