Crypto CEO faces US extradition for crypto asset fraud.
The United States Securities and Exchange Commission (SEC) has filed fraud charges against three companies and nine individuals involved in schemes to manipulate the cryptocurrency market. These schemes aimed to distort the markets for several crypto assets offered and sold as securities to retail investors. The defendants allegedly misled investors by creating the illusion of dynamic trading markets for these assets, inducing them to make purchases based on artificially inflated volumes and prices.
The SEC summary highlights that “this action arises from Defendants’ unregistered and fraudulent offers and sales of crypto assets offered and sold as securities to the investing public and their manipulative trading in such securities.”
Crypto Market Fraudulent Scheme
The complaints filed by the SEC specify that crypto asset promoters:Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran and Vy Pham– worked in collaboration with three companies, ZM Quant, Gotbit and CLS Global, which claimed to act as market makers. Manpreet Singh Kohli, 43, appeared via video link at Westminster Magistrates’ Court in London, at the start of his fight against extradition to the United States.
These entities are accused of engaging in activities aimed at manipulating the trading behavior of crypto assets. It is alleged that they offered “market manipulation as a service” to artificially increase both the trading volume and the price of crypto assets that the promoters marketed to retail investors through unregistered transactions.
As noted in documents filed by SEC, ZM Quant and Gotbitacting on behalf of the promoters, engaged in market manipulation by creating artificial trading volume through self-trading, commonly known as “wash trading”. This practice involves buying and selling the same asset to fabricate the appearance of market activity.
The SEC further claimed that CLS Global executed a comparable scheme involving another cryptocurrency developed under the supervision of the Federal Bureau of Investigation (FBI) as part of a separate investigation into manipulation in the crypto asset market.
The SEC said these deceptive practices misled retail investors into believing that crypto assets were actively trading and had significant market demand, when in fact trading activity was artificial and devoid of any real economic objective. In some cases, the defendants used algorithms or trading bots that generated enormous trading volume, generating up to quadrillions of trades and billions of dollars in artificial trading volume daily on major trading platforms. cryptocurrencies.
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SEC Statement
The SEC’s actions aim to ensure that those responsible for fraudulent activities are held accountable, especially since these schemes allegedly victimized retail investors by luring them with misleading promises of profitability in the unpredictable cryptocurrency markets. Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement Division, highlighted the significance of these charges, saying: “Today’s enforcement actions reaffirm that retail investors are being exploited by fraudulent practices perpetrated by institutional actors in crypto asset markets.
As so-called promoters and self-appointed market makers collaborate to deceive the investing public with false assurances of profits, investors must remain vigilant as the odds may be stacked against them.
The SEC has raised the alarm regarding the crypto asset market’s growing vulnerability to manipulation, especially as these assets are continually traded and sold to the public as securities. Jorge G. Tenreiro, Acting Chief of the Division of Enforcement’s Crypto Asset and Cyber Unit (CACU), expressed concerns about the scale of the deception: “The individuals behind these fraudulent schemes are reaping substantial profits at the expense of investors who were misled in these markets, resulting in the loss of their hard-earned savings. We are committed to identifying and remedying such misconduct, particularly when it concerns securities.
Legal Actions and Charges
The five complaints filed by the SEC were filed in the United States District Court for the District of Massachusetts. These complaints allege that all defendants violated the antifraud and market manipulation provisions of the U.S. securities laws, with some defendants also accused of failing to comply with registration requirements.
- The SEC seeks various forms of relief in these cases, including:
- Permanent injunctions to prevent defendants from committing further violations of the securities laws.
- Conduct-based injunctions to restrict specific actions related to market manipulation.
- Restitution of illicit profits, accompanied by interest, to recover income obtained through illegal activities.
- Civil penalties aimed at deterring future violations.
Prohibitions against certain officers and directors to prevent them from holding executive positions in SEC-regulated companies.
Notably, three main defendants – Armand, Hernandez and Pham – agreed to settle the charges through bifurcated settlements. This settlement, which awaits court approval, would impose a permanent injunction against them for any further violations of the federal securities laws and enforce conduct-based injunctions. In addition, they would be prohibited from serving as managers or directors of public companies. The court will then determine the final amounts of restitution, prejudgment interest, and civil penalties applicable to these defendants.
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FBI and criminal actions
As part of a parallel criminal investigation, the Federal Bureau of Investigation (FBI) and the United States Attorney’s Office for the District of Massachusetts have initiated actions against the individuals involved in these fraudulent activities. The Securities and Exchange Commission (SEC) praised the collaboration between the agencies, which facilitated civil and criminal prosecution of violators.
These cases illustrate a comprehensive approach taken by regulatory and law enforcement agencies to combat market manipulation in the increasingly popular and sometimes volatile area of cryptocurrency assets. As the SEC continues its efforts to monitor and investigate fraudulent practices in the cryptocurrency industry, these enforcement actions serve as a warning to would-be manipulators that their conduct will be scrutinized and will result in consequences. Investors are advised to exercise due diligence and thoroughly research the cryptocurrency market offerings before investing their funds.
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