The United States Department of Justice (DoJ) has taken action against CLS Global FZC LLC, a cryptocurrency financial services firm accused of fraudulent trading practices.
According to 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 company’s plea stems from allegations that it engaged in “wash trading” to manipulate the trading volume of certain cryptocurrencies.
As part of the agreement, CLS Global is said to pay $428,059 in penalties and restitution, and it will be prohibited from participating in cryptocurrency markets accessible to US investors.
The charges follow a lengthy investigation that included undercover operations and targeted fraudulent activities within the digital asset industry. CLS Global admitted to using algorithms to artificially inflate trading volumes, creating the appearance of organic activity that misled potential investors.
How They got Busted
The DoJ’s investigation into CLS Global involved creating 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 boost the token’s visibility and attract more investors. This practice included “self-trades” that were masked to appear as legitimate market activity, meeting certain listing requirements on exchanges.
An undercover agent documented discussions with a CLS Global employee who detailed how the company’s algorithm generated fake trading volume.
The employee’s recorded statements indicated that the company had provided similar services to multiple clients, acknowledging that the process constituted wash trading. The employee said:
It’s very hard to track. . . . We’ve been doing that for many clients. I know that it’s wash trading and I know people might not be happy about it.
These activities were critical in building the criminal case against CLS Global, which has since admitted to its role in the fraudulent scheme.
SEC Involvement And Future Implications
In addition to the criminal charges, the Securities and Exchange Commission (SEC) filed a separate civil enforcement action 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 will be credited toward both the DoJ and SEC settlements, ensuring that financial penalties are applied consistently. Despite these, the release mentioned:
The details contained in the indictment are allegations. The remaining defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Notably, this case highlights the increasing scrutiny on crypto market manipulation and the ongoing efforts by authorities to enforce legal standards within the industry that will curb cases such as this.
Featured image created with DALL-E, Chart from TradingView
