How the FBI used a fake AI fund coin to catch fraudsters
The United States Federal Bureau of Investigation used a fake artificial intelligence fund to catch fraudsters involved in market manipulation.
On Oct. 7, the agency filed a lawsuit in federal district court in Massachusetts that claims the coin, called “NexFundAI (NEXF),” represents shares in an AI-related fund as a crypto security.
According to the indictment, the FBI told the fraudsters it wanted help controlling the token's trading volume. This leads investors to believe that the coin is more popular than it actually is.
The agency used the evidence gathered in this process to prosecute the fraudsters in order to help them commit fraud. This is the first time the FBI has admitted to operating a cryptocurrency as part of its investigation and the first time a crypto market maker has been charged with price manipulation.
Crypto market makers have been accused of price manipulation in the past.
The FBI in 2010 In July 2024, crypto market maker MyTrade MM has reportedly announced that it will guarantee minimum and maximum amounts for token issuers. He is said to have made this offer on his website.
My Business MM Volume Support Service Charged Notice. Source: US Department of Justice
Undercover officers of the agency Meet a member of the crypto exchange LBank team on August 20. LBank used MyTrade as a market maker. The officers agreed to launch the NEXF token on LBank and use MyTrade as a market maker.
Later, the officers met with MyTrade's founder, Liu Zhou, known as “David Zhu” or “DZ”, who detailed how the company had used bath trading to artificially inflate and lure investors into buying genuine non-organic coins. . Interest, as well as how to facilitate pump-and-dumps. “We have to make them lose money to make a profit and pay back the listing fee,” Zhou told the officials.
The NexFundAI token was launched on the LBAnk exchange on or around October 2nd. On that day, MyTrade MM “transacted multi-million dollar laundry trades for approximately 60 clients,” the suit states.
Related: SEC, FBI, DOJ crackdown on fraudulent crypto firms
He charged Zhou and two accomplices with market manipulation and wire fraud, which carries a prison sentence of up to five years. According to an October 9 announcement by the United States Department of Justice (DOJ), Zhou agreed to plead guilty to the crime.
The DOJ announced at the same time that 18 individuals are being indicted in multiple crypto market manipulation cases, of which the NexFundAI case is just one. Three conspirators were named in the NexFundAI case, but only Zhou was named and charged.
Is NexFundAI the same as “BE54c” coin?
Some crypto users speculate that the token referenced in the lawsuit is located at the Ethereum address “0x16ca471aE755f8a2cD4eC315A4a7439dcfEBE54c.”
For example, blockchain analytics firm Bubblemaps posted on X on October 10, “So the FBI launched a token… and the bubble map looks like this…” and provided a link to the Bubblemaps page for the “BE54c” token.
On the same day, Pop Punk, creator of the G8keep token discovery protocol, claimed that the “BE54c” token was valid. They posted a crying emoticon pretending to be the contract auditor and helping the FBI.
I actually audited a smart contract written by the FBI to catch criminals and had no idea 😭😭😭 pic.twitter.com/qx7tCS76mK
— Pop Punk (@PopPunkOnChain) October 9, 2024
Coinbase director J. Connor Grogan agreed that the “BE54c” coin is authentic. The FBI said it created the coin using a wallet account ending in ‘bf3'. This account was backed by another wallet, which itself was backed by a wallet with a token called “pornrocket,” which Grogan thought was funny.
The “BE54c” code may have been created by the FBI. It has the same name as the one mentioned in the indictment, and was created on May 29, four months before the FBI launched the token on the LBank exchange.
No affiliation with Elbank.
However, Arkham Intelligence data shows that there is no direct link between the “BE54c” token distribution account and a known LBAnk wallet.
Alleged FBI coin-operated account transactions. Source: Arkham
This suggests that it may be a copy of the FBI token rather than the real one, or that “BE54c” is the original “NexFundAI” coin, which the FBI token is being named after.
This certainly does not prove that the “BE54c” token was not created by the FBI. The Arkham data on LBank wallets may be incomplete or the tokens may have been transferred to another account before being deposited into the exchange.
However, he points out that more evidence is needed to confirm that the token is what is claimed in the lawsuit.
Allegations of market manipulation continue to cloud the crypto space. On September 29, Dutch regulator AFM warned that pump-and-dump scams would be outright banned in the EU after December 30.
In June, the Italian government announced that it would step up enforcement, imposing fines of up to 5 million euros on individuals who dominate the market for prohibited types of business.
