The United States Federal Bureau of Investigation (FBI) created a fake cryptocurrency called NexFundAI (NEXF) as part of a sting operation to catch alleged fraudsters involved in market manipulation, according to an Oct. 7 indictment in Massachusetts Federal District Court.
The coin was presented as a crypto security tied to an artificial intelligence fund. The FBI convinced the scammers to assist in manipulating the token’s trading volume, which would give the impression of higher demand and fool potential investors. This operation marks the first time the FBI has acknowledged creating a cryptocurrency to investigate fraudulent market activities.
Crypto Market Maker Charged with Price Manipulation
The indictment charges Liu Zhou (aka “David Zhou” or “DZ”), founder of crypto market-making firm MyTrade MM, along with two co-conspirators, with conspiracy to commit market manipulation and wire fraud. They face up to five years in prison. Zhou allegedly outlined how his firm conducted wash trading to artificially boost trading volume and orchestrate pump-and-dump schemes, designed to mislead investors.
The sting led to the launch of the NexFundAI token on the LBank exchange around Oct. 2, during which MyTrade MM executed millions of dollars in wash trades for approximately 60 clients.
The Role of KYC and Fake Token Speculation
Before participating, investors had to complete a Know Your Customer (KYC) process, which verified their identity to prevent illegal activities. Despite being central to the sting, details surrounding the true identity of the NexFundAI token remain speculative. Some analysts and blockchain firms, such as Bubblemaps and Pop on Punk, have linked the FBI token to the BE54c coin located at Ethereum address 0x16ca471aE755f8a2cD4eC315A4a7439dcfEBE54c. However, there is no conclusive evidence to confirm this connection, and Arkham Intelligence data does not show any direct link between the BE54c token and LBank exchange.
Wider Crypto Market Manipulation Investigations
The DOJ’s announcement of the indictment was part of a larger crackdown involving 18 individuals charged in multiple crypto market manipulation cases. Market manipulation schemes, including pump-and-dump tactics, continue to be a concern for regulators. Authorities in Europe and the U.S. have vowed to intensify efforts against such fraudulent practices, with new EU regulations explicitly banning pump-and-dump scams by the end of 2024.
