📋 Tender Overview
The Securities and Exchange Commission announced fraud charges against three companies purporting to be market makers and nine individuals for engaging in schemes to manipulate the markets for various crypto assets being offered and sold as securities to retail investors. As alleged, the schemes were intended to induce investor victims to purchase the crypto assets by creating the false appearance of an active trading market for them.
According to the SEC’s complaints, crypto asset promoters Russell Armand, Maxwell Hernandez, Manpreet Singh Kohli, Nam Tran, and Vy Pham (Promoters) hired so-called market makers ZM Quant and Gotbit to provide market-manipulation-as-a-service, which included generating artificial trading volume or manipulating the price of crypto assets that the Promoters offered and sold as securities to retail investors in unregistered transactions. The SEC also alleged that ZM Quant and a third so-called market maker, CLS Global, undertook similar schemes to manipulate the market of a crypto asset offered and sold as a security that was created at the direction of the Federal Bureau of Investigation as part of its parallel investigation into potential market manipulation in the crypto asset industry.
“Today’s enforcement actions demonstrate, once more, that retail investors are being victimized by fraudulent activity by institutional actors in the markets for crypto assets,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement. “With purported promoters and self-anointed market makers teaming up to target the investing public with false promises of profits in the crypto markets, investors should be mindful that the deck may be stacked against them.”
The SEC alleged that ZM Quant and its employees Baijun Ou and Ruiqi Lau, Gotbit and its employee Fedor Kedrov, and CLS Global and its employee Andrey Zhorzhes manipulated markets on behalf of the Promoters by self-trading (commonly referred to as “wash trading”) on popular crypto asset trading platforms or by engaging in other trading practices that likewise served no economic purpose, and that they used algorithms (or bots) that, at times, generated quadrillions of transactions and billions of dollars of artificial trading volume each day.
“We remain concerned about the ease with which the market for a crypto asset can be manipulated and are committed to rooting out instances of such misconduct when it involves securities,” said Jorge G. Tenreiro, Acting Chief of the Division of Enforcement’s Crypto Asset and Cyber Unit (CACU). “The wrongdoers behind these schemes are profiting handsomely at the expense of investors that have been deceptively lured into these markets and lost their hard-earned savings.”
