The USA Department of Justice (DoJ) has taken motion against CLS Global FZC LLC, a cryptocurrency financial services firm accused of fraudulent trading practices.
In accordance with the DoJ in a press release uploaded on January 21, CLS Global has agreed to plead guilty to charges of conspiracy to commit market manipulation and wire fraud.
The corporate’s plea stems from allegations that it engaged in “wash trading” to control the trading volume of certain cryptocurrencies.
As a part of the agreement, CLS Global is claimed to pay $428,059 in penalties and restitution, and it’s going to be prohibited from participating in cryptocurrency markets accessible to US investors.
The fees follow a lengthy investigation that included undercover operations and targeted fraudulent activities throughout the digital asset industry. CLS Global admitted to using algorithms to artificially inflate trading volumes, creating the looks of organic activity that misled potential investors.
How They got Busted
The DoJ’s investigation into CLS Global involved making a “fictitious” cryptocurrency company, NexFundAI, with a corresponding Ethereum-based token that was traded on Uniswap.
CLS Global offered “market making” services, including wash trading, to spice up the token’s visibility and attract more investors. This practice included “self-trades” that were masked to seem as legitimate market activity, meeting certain listing requirements on exchanges.
An undercover agent documented discussions with a CLS Global worker who detailed how the corporate’s algorithm generated fake trading volume.
The worker’s recorded statements indicated that the corporate had provided similar services to multiple clients, acknowledging that the process constituted wash trading. The worker said:
It’s very hard to trace. . . . We’ve been doing that for many purchasers. I do know that it’s wash trading and I do know people may not be blissful about it.
These activities were critical in constructing the criminal case against CLS Global, which has since admitted to its role within the fraudulent scheme.
SEC Involvement And Future Implications
Along with the criminal charges, the Securities and Exchange Commission (SEC) filed a separate civil enforcement motion against CLS Global.
The SEC’s case focused on securities law violations, and the agency has reached a parallel resolution with the firm. Funds seized from CLS Global shall be credited toward each the DoJ and SEC settlements, ensuring that financial penalties are applied consistently. Despite these, the discharge mentioned:
The small print contained within the indictment are allegations. The remaining defendant is presumed innocent unless and until proven guilty beyond an affordable doubt in a court of law.
Notably, this case highlights the increasing scrutiny on crypto market manipulation and the continued efforts by authorities to implement legal standards throughout the industry that can curb cases resembling this.
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