FBI Sting Uncovers Major Crypto Fraud: 18 Charged in Operation Token Mirrors

In a sweeping operation targeting cryptocurrency fraud, U.S. authorities have charged 18 individuals and companies in connection with a sophisticated market manipulation scheme following an FBI sting that involved the creation of a fake cryptocurrency. Dubbed “Operation Token Mirrors,” the investigation resulted in the seizure of over $25 million in crypto assets and unveiled a wide-reaching pump-and-dump plot that bilked investors out of millions.

The U.S. Department of Justice (DOJ) announced Wednesday that five defendants have already pleaded or agreed to plead guilty, while three others were arrested this week in Texas, the U.K., and Portugal. The Securities and Exchange Commission (SEC) revealed the operation relied on “on-demand market manipulation” via bots and algorithms, generating quadrillions of fake transactions and billions in artificial trading volume on cryptocurrency platforms.

At the core of the operation was a token called NexFundAI, which was marketed as a vehicle for investing in early-stage artificial intelligence projects. Behind the scenes, however, NexFundAI was designed by federal agents as a tool to expose a pump-and-dump scheme.

Pump-and-Dump Scheme

In early 2024, ZM Quant, a supposed market maker, was hired to boost trading activity for NexFundAI. According to the SEC, ZM Quant worked with the backers of NexFundAI to artificially inflate the token’s price, aiming to “cash out at the peaks” once the token gained traction. On May 31, 2024, ZM Quant was responsible for over 80% of NexFundAI’s trading volume, creating a false sense of high demand and encouraging other investors to jump in. However, the entire operation was a trap laid by federal agents.

“The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and bring these alleged fraudsters to justice,” said Jodi Cohen, an FBI special agent. The sting resulted in charges against the leaders of four cryptocurrency companies and four market-making firms accused of spearheading the fraudulent scheme.

Fraudulent Companies and Manipulation Tactics

The charged parties include employees of market-makers Gotbit Consulting, CLS Global FZC, and MyTrade MM, along with crypto companies Saitama, Robu Inu, VZZN, and Lillian Finance. Among them, Saitama—a cryptocurrency once valued at $7.5 billion—allegedly engaged in significant market manipulation. The DOJ uncovered private messages between Saitama executives detailing plans to “create an illusion of massive buys” to fuel public interest, driving up the token price while they secretly sold their holdings for millions in profit.

Federal law enforcement traced the manipulation back to July 2021, when a Saitama leader proposed the scheme. The manipulation involved generating fake interest and volume in the token to attract unsuspecting buyers. “Yep,” replied another Saitama backer in agreement, even sending a GIF that read “Pump it up.”

Federal Charges and Broader Implications

The defendants now face a range of charges, including market manipulation, conspiracy to commit money laundering, and wire fraud. If convicted, they could face up to 20 years in prison. Acting U.S. Attorney Joshua Levy stressed the gravity of the situation: “Wash trading has long been outlawed in the financial markets, and cryptocurrency is no exception. These are cases where an innovative technology, cryptocurrency, met a century-old scheme, the pump-and-dump.”

Pump-and-dump schemes have long plagued traditional financial markets, from penny stocks to over-the-counter bulletin boards. Now, with the rise of cryptocurrency, bad actors are applying these same tactics to the digital space, manipulating prices through social media hype, fake trading volume, and behind-the-scenes coordination.

A Call for Regulation and Investor Protection

The DOJ’s operation highlights a growing concern over fraud in cryptocurrency markets and the need for tighter regulations. “This is exactly why the SEC is going that extra mile,  because of the bad actor element looking to swoop in and scam the public,” said Levy. The FBI and SEC are sending a clear message: such crimes will not be tolerated.

As cryptocurrency continues to grow in popularity, federal agencies are increasing their efforts to protect investors from market manipulation and fraud. At the same time, there is a growing call for self-regulation within the crypto industry, with leaders at the top encouraged to adopt practices that promote transparency and fair market practices.

The arrests and guilty pleas in Operation Token Mirrors mark a significant step forward in combating fraud within the crypto space, and authorities hope the case will serve as a warning to other would-be fraudsters.

Ben Tang
Digital Assets Desk