The SEC took action against 3 firms and 9 individuals in this sweeping crypto fraud case.
The U.S. Securities and Exchange Commission (SEC) filed fraud charges against nine individuals and three market maker firms for crypto asset fraud schemes.
According to the SEC’s complaints, the defendants allegedly engaged in schemes to manipulate the markets for certain crypto assets being sold to retail investors. The idea, alleges the SEC, was to create the false appearance of an active trading market for these crypto assets to induce retail investors to buy them.
The charges allege that crypto asset promoters Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham hired the firms ZM Quant and Gotbit to provide market-manipulation-as-a-service. The firms generated artificial trading volume to manipulate the price of crypto assets that the promoters sold to retail investors.
“Today’s enforcement actions demonstrate, once more, that retail investors are being victimized by fraudulent activity by institutional actors in the markets for crypto assets,” Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement, said. “With purported promoters and self-anointed market makers teaming up to target the investing public with false promises of profits in the crypto markets, investors should be mindful that the deck may be stacked against them.”
False promises
Further, ZM Quant and a third so-called market maker, CLS Global, were charged as part of a separate sting operation. The two firms allegedly undertook similar schemes to manipulate the market of a crypto asset that was created at the direction of the Federal Bureau of Investigation (FBI) as part of its parallel investigation.
ZM Quant and its employees Baijun Ou and Ruiqi Lau, Gotbit and its employee Fedor Kedrov, and CLS Global and its employee Andrey Zhorzhes were also charged with manipulating markets on behalf of the promoters by self-trading, or “wash trading,” on popular crypto asset trading platforms. They also allegedly used algorithms, or bots, that generated quadrillions of transactions and billions of dollars of artificial trading volume daily.
“We remain concerned about the ease with which the market for a crypto asset can be manipulated and are committed to rooting out instances of such misconduct when it involves securities,” Jorge Tenreiro, acting chief of the Division of Enforcement’s Crypto Asset and Cyber Unit (CACU), said. “The wrongdoers behind these schemes are profiting handsomely at the expense of investors that have been deceptively lured into these markets and lost their hard-earned savings.”
All of the defendants were charged for violating antifraud and market manipulation laws, while certain defendants violated registration provisions. The complaints, filed in the U.S. District Court for the District of Massachusetts, seek injunctions, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties against all the defendants. The court will determine the amount of disgorgement and prejudgment interest, and any civil penalties.
This is the latest in a series of actions that the SEC has taken against companies in the crypto industry. Two weeks ago, the SEC settled charges against Mango DAO and Blockworks Foundation for the unregistered sale of crypto assets called “MNGO” tokens.
And on September 24, the agency settled fraud charges against TrueCoin and TrustToken over unregistered sales of investment contracts involving TrueUSD (TUSD), a purported stablecoin.
Roughly one month ago, the SEC settled charges with eToro USA for operating an unregistered broker and clearing agency in connection with its trading platform that facilitated buying and selling certain crypto assets as securities. eToro was fined $1.5 million and agreed to make only a limited set of crypto assets available for trading in the U.S.
