SEC charges firms, individuals with alleged market making crypto fraud

Three companies and nine individuals have been charged by the Securities and Exchange Commission for allegedly fraudulent market manipulation schemes aimed at retail investors in crypto assets.

The SEC’s complaints claim that the companies purported to be market makers and that the individuals offered investors market-manipulation-as-a-service including generating artificial trading volume or manipulating the price of crypto assets that were offered and sold as securities in unregistered transactions.

“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 accused the companies—ZM Quant, Gotbit, and CLS Global—and their employees of cheating the system by using fake trades known as "wash trading" to make it look like people were buying and selling a lot of crypto on popular trading platforms, even though these trades had no real purpose. They also allegedly used bots to create huge numbers of fake trades, sometimes making billions of dollars of pretend activity every 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. “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.”

None of the allegations have been proven in court.