- As part of “Operation Token Mirrors,” the FBI arrested 18 individuals by trapping them in its own cryptocurrency, the NexFundAI Token.
- The NexFundAI Token was deployed on the Ethereum blockchain as a security token designed to attract fraudulent behavior, enabling the agency to monitor illegal activities.
The FBI developed its own crypto, called “The NexFundAI Token,” to expose fraudsters in the Web3 industry. The agency’s operation led to the arrest of 18 individuals connected to fraudulent activities involving crypto companies and market manipulation. The investigation, named “Operation Token Mirrors,” is one of the first known instances of law enforcement creating its own digital currency to catch hold of criminal networks.
FBI Created Own Crypto Token NexFundAI As ‘Bait’
The FBI set up NexFundAI Token on the Ethereum blockchain, labeling it as a security token. According to court documents, NexFundAI was deployed as a “bait” to attract fraudulent behavior. This allowed investigators to observe and catch individuals engaged in illegal activities, including wash trading and pump-and-dump schemes. Players like Worldcoin have been using special tech to reduce such frauds from the market, reported CNF.
For context, wash trading refers to executing sham trades to falsely inflate trading activity. It thereby, creates an illusion of value to entice new investors, leading them to doom. “This investigation, the first of its kind, identified numerous fraudsters in the cryptocurrency industry,” said Acting U.S. Attorney Joshua Levy. He added that the message is clear: “If you make false statements to trick investors, that’s fraud. Period.”
Among those charged were leaders of four crypto firms and four financial services firms, known as “market makers,” who allegedly manipulated the markets. Furthermore, the FBI seized more than $25 million worth of crypto as part of the probe. They also confiscated the fraudulent trading bots responsible for manipulating the prices of approximately 60 different cryptocurrencies.
The FBI revealed that the fraudulent schemes were orchestrated by companies promoting false information about their tokens. These companies then hired market makers to execute wash trades that boosted the value of the tokens. One defendant reportedly told a client that the goal was to find unsuspecting buyers.
It’s because, as he explained, “we have to make [the other buyers]lose money in order to make a profit.” Among the firms involved, FBI’s NexFundAI had ties to the market makers involved in the operation. Eventually, the bait worked and they could apprehend 18 suspects on Wednesday, October 9. Recently, the FBI has also been spicing up things behind the stories of revealing Satoshi Nakamoto’s identity, reported CNF.
Tracing Crypto Movements
Conor Grogan, Director at Coinbase exchange, raised concerns on social media about the FBI’s involvement. “Not sure if the FBI realized this, but they doxxed their wallets,” Grogan wrote on X (formerly Twitter). He also noted that the FBI-linked wallets owned at least 75% of NexFundAI’s token supply. These wallets had made transactions with various platforms, including Tokenlon, Binance, Zixipay, and HTX.
On the other hand, Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, described the operation as a significant step toward exposing crypto fraud. “Operation Token Mirrors targeted nefarious token developers, promoters, and market makers in the crypto space. What we uncovered has resulted in charges against the leadership of four cryptocurrency companies and four crypto ‘market makers’ and their employees who are accused of spearheading a sophisticated trading scheme,” she said.
Furthermore, the SEC also decided to join the FBI in the case. The agency slapped fraud charges on ZM Quant, Gotbit, and CLS Global for allegedly manipulating crypto markets.
