- The SEC has indicted three so-called crypto market makers and nine individuals for fraud and market manipulation.
- The investigation involved the Justice Department and the FBI, which exposed deceptive practices used to manipulate the market.
- The SEC is seeking permanent injunctions, financial sanctions and bans from office for those involved.
In one of the largest enforcement actions, the SEC indicted three market makers and nine individuals involved in the crypto industry for market manipulation. The SEC filed charges in Massachusetts District Court citing the defendants as conducting fraudulent schemes to deceive retail investors.
Working with the FBI and Department of Justice, the SEC investigation reveals how crypto assets were deliberately manipulated to appear highly active on exchanges, including to attract investors.
According to the SEC, cryptocurrency promoters Russell Armand and Maxwell Hernandez employed companies such as ZM Quant and Gotbit to artificially inflate the trading volume of certain cryptocurrency assets. Regulators say this is a fraudulent technique that misled investors into believing that assets were being actively traded when, in reality, those trades had actually been rigged.
Market makers accused of artificial trading
Wash trading, in which the same parties simultaneously buy and sell assets to create false volumes, was the centerpiece of these various market manipulation schemes. ZM Quant, Gotbit and CLS Global allegedly used bots to make billions of artificial transactions every day, further distorting market activity.
This case only touches on many concerns about how easily crypto markets can be manipulated, with market makers making money at the expense of unsuspecting retail investors. Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement Division, said:
As so-called promoters and self-proclaimed market makers combine to target the investing public with false promises of profits in crypto markets, investors should be aware that the deck may be stacked against them.
SEC calls for strong legal action
The SEC filed a complaint alleging five violations of anti-fraud and market manipulation laws. It seeks a permanent injunction against financial sanctions against all defendants and bans certain individuals serving as officers or directors. Some of them settled the case by agreeing to comply with SEC regulations while awaiting court approval.
Armand and Hernández are among those who accepted this. However, this case illustrates the increased regulatory focus on the crypto market in an effort to ensure that there will be no more manipulation and that investors will be protected from fraud.
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