The FBI recently conducted a smart operation using a fake AI cryptocurrency, NexFundAI, to catch market manipulators. The FBI created the NexFundAI token as part of a plan to catch people involved in illegal activities in the cryptocurrency world.
A fake cryptocurrency, launched on the Ethereum blockchain under the guise of artificial intelligence (AI), was crafted to appear as a promising investment—deliberately attracting the attention of bad actors.
The FBI’s objective was to entice bad actors, particularly market manipulators—those who create deceptive trading opportunities in the cryptocurrency market—into believing in the token’s value.
These manipulators often engage in “wash trading,” a tactic where they buy and sell a token among themselves to falsely inflate trading activity and lure other investors.
From 2021 to 2024, Liu Zhou (“David Zhou”) and others developed and marketed MyTrade MM, a tool designed to manipulate cryptocurrency markets. This system artificially inflated prices and trading volumes through “wash trading,” a tactic involving the repeated buying and selling of the same asset to create false activity.
The aim was to deceive investors and increase profits while evading detection by authorities. Zhou advertised these services, assisted clients in manipulating crypto prices, and collaborated with exchanges to promote his tool.
On September 16, 2024, Liu Zhou, unaware he was speaking with the FBI posing as NexFundAI, explained in a video call how MyTrade MM generated fake trading activity on decentralized exchanges.
Four days later, he discussed methods to attract buyers and execute “pump and dump” schemes, profiting at others’ expense. Zhou also shared strategies for market manipulation and maximizing profits from these practices.
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He explained that MyTrade could orchestrate “pump and dumps” timed with project announcements to quickly inflate prices. He agreed to offer this service to NexFundAI on LBank for a fee. On October 2, 2024, MyTrade’s bots executed millions in fake trades for about 60 clients before law enforcement shut them down.
After the exchange’s closure, it was revealed that the Department of Justice had charged 18 individuals and companies with manipulating cryptocurrency markets. These defendants were accused of using illicit techniques to artificially inflate the value of certain cryptocurrencies.
Several individuals identified by the FBI have pleaded guilty, and the Securities and Exchange Commission (SEC) has also filed charges against them for violating securities laws.
One of the defendants, Liu Zhou, also known as “David Zhou” or “DZ,” was ordered to forfeit any property, real or personal, derived from proceeds traceable to the offenses, according to the filing. The names of the other culprits were not disclosed in the document.
