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Abstract:The U.S. Department of Justice (DOJ) has recently secured a guilty plea from Liu Zhou, the founder of the crypto market-making firm MyTrade, for charges involving market manipulation.
The U.S. Department of Justice (DOJ) has recently secured a guilty plea from Liu Zhou, the founder of the crypto market-making firm MyTrade, for charges involving market manipulation. Zhou, a 39-year-old entrepreneur in the cryptocurrency sector, admitted to executing “wash trading,” a tactic that artificially inflates asset prices by initiating simultaneous buy and sell orders, creating an illusion of high trading volume. Zhous sentencing is scheduled for early next year.
Zhou‘s firm, MyTrade MM, has been accused of misleading clients by engaging in self-trades and orchestrating “pump and dump” schemes, practices that inflated token prices and misled investors into buying at artificially high values. Zhou allegedly indicated that the firm’s strategy was to “locate other buyers from the community” to profit at the expense of unsuspecting investors. By manipulating market prices, MyTrade MM contributed to an environment where token valuations appeared robust and active, though these values were based on misleading data.
This case forms part of a broader DOJ initiative aimed at addressing crypto market manipulation, with other firms like Gotbit, CLS Global, and ZM Quant also under investigation for practices allegedly designed to inflate token volumes. According to the DOJ, these companies made tokens appear more liquid and valuable than they actually were, subsequently selling them at inflated prices to unwitting investors. The crackdown reflects the DOJs efforts to increase transparency and discourage deceptive practices within the volatile cryptocurrency sector.
Among the firms facing scrutiny, CLS Global has responded by initiating communication with U.S. authorities. Filipp Veselov, CEO of CLS Global, acknowledged potential areas for improvement within the firm‘s operations and expressed openness to a constructive dialogue with regulators. CLS Global has also stated that it is taking steps to minimize engagement with U.S. clients, a move that aligns with the DOJ’s heightened focus on market manipulation in the crypto industry.
In a similar development in 2023, the Securities and Exchange Commission (SEC) accused Sigma Chain, a trading firm associated with Binance founder Changpeng Zhao (CZ), of engaging in wash trading on the platform of Binance.US, its U.S.-based affiliate. According to the SEC, Sigma Chain artificially inflated the trading volume of crypto asset securities to create a misleading perception of liquidity on Binance.US, a tactic that added to the growing scrutiny of trading practices within the Binance ecosystem.
These cases underscore the increased regulatory focus on crypto trading platforms and market-making firms that engage in deceptive practices, impacting the transparency and trust in the industry. With the DOJ and SEC stepping up enforcement actions, the cryptocurrency market is witnessing a push towards accountability, aiming to protect investors and foster a more transparent trading environment.
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