The U.S. Securities and Exchange Commission (SEC) has filed fraud charges against three companies and nine individuals for orchestrating schemes to manipulate the markets for various crypto assets. According to the complaint, these manipulative practices were aimed at deceiving retail investors into buying digital assets by falsely inflating trading activity.
SEC Charges Against Crypto Market Makers
The companies charged, ZM Quant, Gotbit, and CLS Global, are accused of offering “market manipulation-as-a-service” to crypto promoters, including Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham. The SEC alleges that the promoters hired these firms to artificially generate high trading volumes and manipulate asset prices. This move created the illusion of an active and thriving market for the crypto assets they were selling.
Deputy Director of the SEC’s Division of Enforcement, Sanjay Wadhwa, highlighted the scale of investor deception. He stated, “Retail investors are being victimized by fraudulent activity by institutional actors in the markets for crypto assets.” He added that these market manipulators misled investors with “false promises of profits,” creating an uneven playing field for those who unknowingly invested in these manipulated markets.
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According to the a press release, the firms engaged in illegal activities such as wash trading, a practice where traders buy and sell an asset among themselves to falsely inflate trading volumes. ZM Quant and Gotbit, along with CLS Global, allegedly used algorithms capable of generating quadrillions of transactions, producing billions of dollars in fake trading volume daily. These trades, according to the regulator, served no economic purpose other than to deceive potential buyers.
Risk to Investors
Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Asset and Cyber Unit (CACU), warned that the ability to manipulate crypto markets poses significant risks to investors. “We remain concerned about the ease with which the market for a crypto asset can be manipulated,” said Tenreiro. He emphasized that these schemes have “profited handsomely at the expense of investors that have been deceptively lured into these markets.”
The SEC has filed five complaints in the U.S. District Court for the District of Massachusetts, accusing the defendants of violating multiple securities laws. The complaints seek various penalties, including permanent injunctions, disgorgement of ill-gotten gains, and civil fines. Armand, Hernandez, and Pham have agreed to settle with the SEC. However, the settlement is subject to court approval, which will bar them from acting as officers or directors of any company.
The investigation was conducted by the SEC’s Boston Regional Office and its Crypto Asset and Cyber Unit. The agency also acknowledged the assistance of the FBI and the U.S. Attorney’s Office for the District of Massachusetts. They also announced parallel criminal actions against some of the defendants.
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