2024

United

Punk

The United States Federal Bureau of Investigation used a fake artificial intelligence fund crypto to catch alleged fraudsters engaged in market manipulation. According to an Oct. 7 indictment in Massachusetts Federal District Court, the coin, which the agency called “NexFundAI (NEXF),” was presented as a crypto security that claimed to represent shares in an AI-related fund.
Per the indictment, the FBI <a data-ct-non-breakable="null" href="https://www.justice.gov/d9/2024-10/zhou_information_0.pdf" rel="null" target="null" text="null" title="null">told</a> scammers that it wanted help manipulating the token’s trading volume. This would fool investors into believing that the coin was more popular than it actually was. 
The scammers offered to help with the fraud, and the agency used the evidence collected during this process to get an indictment against them. This is the first time the FBI has admitted to creating a cryptocurrency as part of its investigations and the first time it has charged a crypto market maker with price manipulation.
Crypto market makers have often been <a data-ct-non-breakable="null" href="https://cointelegraph.com/magazine/crypto-market-makers-legit-dodgy-fake-it/" rel="null" target="null" text="null" title="null">accused of manipulating prices</a> in the past.
The FBI reportedly discovered in July 2024 that crypto market-making firm MyTrade MM was offering to guarantee a minimum and maximum volume to token issuers. It allegedly made this offer on its website.
<figure>
 <img alt="FBI token: How the FBI used a fake AI fund coin to nab fraudsters" src="https://s3.cointelegraph.com/uploads/2024-10/01927b5a-c648-7f53-9662-4ddeaa374e48" title="">
 <figcaption style="text-align: center;">
 Alleged advertisement for My Trade MM volume support service. Source: US Justice Department.
 </figcaption>
</figure>
The agency’s undercover officers met with a team member from crypto exchange LBank on Aug. 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.&nbsp;
Later, the officers met with MyTrade founder Liu Zhou, also known as “David Zhou” or “DZ,” who allegedly explained in great detail how the firm used wash trading to artificially increase volume and fool investors into buying coins that have no real organic interest, as well as how it facilitates pump-and-dumps. “We have to make them lose money in order to make profit and get the listing fee back,” Zhou allegedly stated to the officers.
The NexFundAI token launched on or around Oct. 2 on the LBank exchange. On that day, MyTrade MM conducted “millions of dollars’ worth of wash trades for approximately 60 clients,” the indictment states. 
Related: <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/crypto-market-makers-fraud-sec" rel="" target="_self" text="null" title="https://cointelegraph.com/news/crypto-market-makers-fraud-sec">SEC, FBI, DOJ coordinate takedown of fraudulent crypto firms</a>
It charges Zhou and two co-conspirators with conspiracy to commit market manipulation and wire fraud, which carries a sentence of up to five years in prison. According to an Oct. 9 United States Department of Justice (DOJ) announcement, Zhou has <a data-ct-non-breakable="null" href="https://www.justice.gov/usao-ma/pr/eighteen-individuals-and-entities-charged-international-operation-targeting-widespread" rel="null" target="null" text="null" title="https://www.justice.gov/usao-ma/pr/eighteen-individuals-and-entities-charged-international-operation-targeting-widespread">agreed</a> to plead guilty to the crime.
The DOJ simultaneously announced that 18 individuals were being charged in multiple crypto market manipulation cases, of which the NexFundAI case was only one. Three conspirators were mentioned in the NexFundAI case, but only Zhou was named and charged.
<h2 id="is-nexfundai-the-same-as-the-be54c-coin">Is NexFundAI the same as the “BE54c” coin?</h2>
Some crypto users have speculated that the token named in the indictment is the one located at the Ethereum address “0x16ca471aE755f8a2cD4eC315A4a7439dcfEBE54c.”&nbsp;
For example, blockchain analytics firm Bubblemaps posted to X on Oct. 10 stating, “So the FBI launched a token…and the bubble map looked like this…” It provided a link to the Bubblemaps page for the “BE54c” token.
On the same day, Pop Punk, creator of the G8keep token discovery protocol, also claimed that the “BE54c” token is the correct one. They <a data-ct-non-breakable="null" href="https://x.com/PopPunkOnChain/status/1844138707860980062" rel="null" target="null" text="null" title="https://x.com/PopPunkOnChain/status/1844138707860980062">claimed</a> to be the contract’s auditor and posted crying emojis in response to the thought that they had helped the FBI.
<blockquote class="twitter-tweet">
 I literally audited a fucking smart contract written by the FBI to catch criminals and had no idea 😭😭😭 <a href="https://t.co/qx7tCS76mK">pic.twitter.com/qx7tCS76mK</a>— Pop Punk (@PopPunkOnChain) <a href="https://twitter.com/PopPunkOnChain/status/1844138707860980062?ref_src=twsrc%5Etfw">October 9, 2024</a>
</blockquote>
Coinbase director J. Connor Grogan agreed that the “BE54c” coin is the correct one. He <a data-ct-non-breakable="null" href="https://x.com/jconorgrogan/status/1844126207312359770" rel="null" target="null" text="null" title="null">stated</a> that the FBI created the coin using a wallet account ending in “bf3.” This account was funded by another wallet, which was itself funded by a wallet containing a token called “Pornrocket,” which Grogan seemed to think was humorous.
The “BE54c” token could be the one created by the FBI. It has the same name as the one mentioned in the indictment, and it was created on May 29, just four months before the FBI launched its token on the LBank exchange.
<h3 id="no-connection-to-lbank">No connection to LBank</h3>
However, Arkham Intelligence data <a data-ct-non-breakable="null" href="https://platform.arkhamintelligence.com/explorer/address/0x72Ad95C3B65A0da6826b336C104a929D1e676bF3" rel="null" target="null" text="null" title="null">shows</a> no direct connection between the “BE54c” token’s deployer account and any known LBank wallet.
<figure>
 <img alt="FBI token: How the FBI used a fake AI fund coin to nab fraudsters" src="https://s3.cointelegraph.com/uploads/2024-10/01927b5b-f2a6-74a3-bf52-dade2029e56f" title="">
 <figcaption style="text-align: center;">
 Alleged FBI coin’s deployer account transactions. Source: Arkham
 </figcaption>
</figure>
This suggests that it may be a copycat of the FBI token rather than the real one or that the “BE54c” is the original “NexFundAI” coin, while the FBI’s token is named after it.&nbsp;
This does not definitely prove that the “BE54c” token was not created by the FBI. It’s possible that Arkham’s data on LBank wallets is incomplete or that the tokens were transferred to another account before being deposited to the exchange. 
However, it implies that further evidence would be needed to prove that this token is the one named in the indictment.
Allegations of market manipulation continue to plague the crypto space. On Sept. 29, Dutch regulator AFM warned token issuers that pump-and-dump scams <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/afm-crypto-pump-and-dump-warning-micar-regulation" rel="" target="_self" text="null" title="https://cointelegraph.com/news/afm-crypto-pump-and-dump-warning-micar-regulation">will be explicitly prohibited</a> in the European Union after Dec. 30. 
In June, the Italian government announced that it would also step up enforcement, <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/italian-gov-ramp-up-surveillance-cryptocurrency-market" rel="" target="_self" text="null" title="https://cointelegraph.com/news/italian-gov-ramp-up-surveillance-cryptocurrency-market">levying fines as high as 5 million euros</a> against individuals who manipulate the market through prohibited forms of trading.

FBI token: How the FBI used a fake AI fund coin to nab fraudsters

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