SEC Cracks Down on Cryptocurrency Market Manipulation in Major Fraud Case

The U.S. Securities and Exchange Commission (SEC) has charged three companies and nine individuals with fraud in connection to schemes designed to manipulate the cryptocurrency market. These schemes involved misleading retail investors by fabricating the appearance of active trading markets for various crypto assets, which were marketed and sold as securities. By artificially inflating trading volumes and prices, the accused lured investors into purchasing these assets based on false market activity.

According to the SEC, the defendants carried out unregistered and fraudulent sales of crypto assets, which were falsely presented as actively traded securities. Among those charged are Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham, along with three firms—ZM Quant, Gotbit, and CLS Global—that acted as market makers. Kohli appeared via video-link at Westminster Magistrates’ Court in London as part of his fight against extradition to the U.S.

The SEC’s complaint outlines how these entities manipulated the trading behavior of crypto assets by offering what they termed “market-manipulation-as-a-service.” This service inflated both the trading volume and prices of the assets they were promoting, deceiving retail investors into believing they were investing in highly demanded securities. The manipulative tactics involved “wash trading,” where ZM Quant and Gotbit executed self-trades to create fake trading volume. CLS Global was accused of using a similar approach with another cryptocurrency, which had been developed under FBI supervision in a separate investigation.

The fraudulent actions, according to the SEC, led investors to believe the crypto assets were in high demand, when in reality, the market activity was contrived, lacking any true economic purpose. In some instances, the defendants deployed algorithms and trading bots to generate massive amounts of transactions—up to quadrillions of trades daily—producing billions of dollars in artificial trading volume on major cryptocurrency platforms.

The SEC’s enforcement aims to hold the accused accountable for these fraudulent practices, which have reportedly victimized retail investors by enticing them with false profit opportunities in the unpredictable cryptocurrency markets. Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, emphasized that the charges highlight the exploitation of retail investors by institutional players using deceptive tactics. Wadhwa urged investors to remain vigilant in the face of such schemes.

Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Asset and Cyber Unit (CACU), expressed concern over the growing vulnerability of the crypto market to manipulation. He stressed that those involved in these schemes have reaped substantial profits at the expense of investors, many of whom have lost significant savings due to the fraudulent conduct. The SEC remains committed to identifying and addressing misconduct, especially in cases involving securities.

The SEC has filed five complaints in the United States District Court for the District of Massachusetts, alleging violations of antifraud and market manipulation provisions of U.S. securities laws. Some defendants are also accused of failing to meet registration requirements. The SEC is seeking several forms of relief, including:

• Permanent injunctions to prevent further securities law violations.
• Conduct-based injunctions to restrict actions related to market manipulation.
• Disgorgement of illicit profits, with interest, to recover funds gained through unlawful means.
• Civil penalties to deter future violations.
• Bars to prevent certain individuals from holding leadership roles in companies regulated by the SEC.

Three of the main defendants—Armand, Hernandez, and Pham—have agreed to settle the charges in bifurcated settlements, pending court approval. The settlement would impose a permanent injunction against future violations, conduct-based restrictions, and a ban on serving as officers or directors of public companies. The court will later decide the final amounts for disgorgement, prejudgment interest, and civil penalties.

Alongside the SEC’s civil actions, the Federal Bureau of Investigation (FBI) and the United States Attorney’s Office for the District of Massachusetts have launched criminal investigations against the individuals involved. The SEC acknowledged the collaboration between agencies, which has enabled both civil and criminal cases to move forward.

These actions underscore a comprehensive effort by regulators and law enforcement to combat market manipulation in the growing and often volatile cryptocurrency sector. As the SEC continues to investigate fraudulent practices within the industry, these cases serve as a warning to potential manipulators that their activities will be closely scrutinized and met with consequences. Investors are encouraged to exercise caution and conduct thorough research before investing in cryptocurrency assets.

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