The Securities and Exchange Commission has formally charged three companies claiming to act as market makers, along with nine individuals, for their involvement in schemes designed to manipulate the markets for various crypto assets marketed and sold as securities to retail investors. The allegations suggest that these schemes aimed to mislead potential investors into purchasing these crypto assets by fabricating the illusion of a vibrant trading market.
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The SEC’s complaints detail how crypto asset promoters Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham engaged the services of market makers ZM Quant and Gotbit, who provided market manipulation services. This included artificially inflating trading volumes and manipulating the prices of crypto assets that the promoters offered and sold to retail investors in transactions that were not registered. Additionally, the SEC claims that ZM Quant, along with another market maker, CLS Global, executed similar schemes to distort the market for a crypto asset that was developed under the guidance of the Federal Bureau of Investigation as part of its investigation into potential market manipulation within the crypto sector.
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Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, emphasized that these enforcement actions highlight the ongoing victimization of retail investors by fraudulent practices perpetrated by institutional players in the crypto asset markets. He cautioned that with promoters and self-proclaimed market makers collaborating to lure investors with misleading promises of profits, individuals should remain vigilant, as the circumstances may be heavily skewed against them.
The Securities and Exchange Commission (SEC) has accused ZM Quant, along with its employees Baijun Ou and Ruiqi Lau, as well as Gotbit and its employee Fedor Kedrov, and CLS Global with employee Andrey Zhorzhes, of engaging in market manipulation on behalf of the Promoters. This manipulation was allegedly executed through self-trading, commonly known as “wash trading,” on well-known cryptocurrency trading platforms, or through other trading activities that lacked any legitimate economic rationale. Furthermore, the accused reportedly utilized algorithms or bots that, at times, produced quadrillions of transactions and generated billions of dollars in artificial trading volume on a daily basis.
Jorge G. Tenreiro, the Acting Chief of the Division of Enforcement’s Crypto Asset and Cyber Unit (CACU), expressed ongoing concerns regarding the vulnerability of cryptocurrency markets to manipulation. He emphasized the SEC’s commitment to identifying and addressing such misconduct, particularly when it pertains to securities. Tenreiro highlighted that the individuals orchestrating these schemes are reaping substantial profits at the expense of unsuspecting investors, who have been misled into these markets and have consequently suffered significant financial losses.
The SEC has filed five complaints in the United States District Court for the District of Massachusetts, alleging that all defendants breached antifraud and market manipulation regulations under securities laws, with some also violating registration requirements. The complaints seek various remedies, including permanent injunctions, conduct-based injunctions, the return of allegedly illicit profits with interest, and civil penalties against all involved parties. Additionally, certain defendants, namely Armand, Hernandez, and Pham, have agreed to bifurcated settlements, pending court approval, which would permanently prohibit them from further violations of federal securities laws, impose conduct-based injunctions, and prevent them from serving as officers or directors. The court will ultimately decide on the amounts for disgorgement, prejudgment interest, and any civil penalties.
The Securities and Exchange Commission (SEC) expresses its gratitude for the collaboration provided by the Federal Bureau of Investigation (FBI) and the United States Attorney’s Office for the District of Massachusetts, which today revealed concurrent criminal proceedings.
The investigations conducted by the SEC were led by David D’Addio, Amy Harman Burkart, Ivan Panchenko, Jeffrey Cook, and John McCann from the Boston Regional Office, alongside Colin Missett and Joy Guo from the CACU. Oversight was provided by Amy Gwiazda, Michael Brennan, Donald Battle, and Mr. Tenreiro of the CACU, as well as Celia Moore and John T. Dugan from the Boston Regional Office. The SEC also acknowledges the support from the Office of Strategic Hub for Innovation and Financial Technology. The litigation efforts will be spearheaded by Mr. D’Addio and Ms. Burkart.
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