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SEC Charges Money Makers with Fraud for Misleading Cryptocurrency Investors

The U.S. Securities and Exchange Commission (SEC) recently filed fraud charges against nine people and three market makers for their roles in manipulating the trading of several cryptocurrency assets offered to retail investors as securities. It is alleged that the defendants planned fictitious trading activities to trick investors into believing there was real interest in the assets. The SEC said that by giving the impression of a working market, these efforts broke securities rules and harmed ordinary investors.

According to the regulator, Vy Pham, Nam Tran, Manpreet Singh Kohli, Maxwell Hernandez and Russell Armand hired Gotbit and ZM Quant to artificially inflate trading volumes. The goal was to lure investors into purchasing cryptocurrency assets by creating the false impression that there was an active market. The schemes relied on manipulative tactics such as wash trading, which involves repeatedly buying and selling the same asset to create the appearance of market activity.

Additionally, another company, CLS Global, has been implicated in manipulating the market of an asset created under the U.S. Federal Bureau of Investigation (FBI)’s guidance as part of a concurrent investigation.

The regulator accused all defendants of breaking market manipulation and antifraud rules in complaints filed with the U.S. District Court for the District of Massachusetts. It is requesting civil fines, confiscation of any financial gains, permanent injunctions and, for certain persons, prohibitions on holding director or officer positions in businesses.

Simultaneously, the U.S. Attorney’s Office and the FBI have launched their own criminal investigations. Some of the defendants, including Pham, Hernandez and Armand, have already agreed to settle their cases, which are pending approval by the court. The settlements will likely result in financial penalties and restrictions on their future professional roles.

This enforcement move demonstrates the SEC’s increasing focus on fraudulent behavior in the fast-growing and largely unregulated crypto-asset sector. The regulator is making it clear that misbehavior in digital or traditional markets will not be allowed by holding both promoters and organizations engaged in market manipulation accountable.

Director of the SEC’s Division of Enforcement Gurbir S. Grewal stressed, “The SEC has made it abundantly evident that manipulating the market for cryptocurrency assets advertised as securities is unlawful, and we will hold entities and individuals accountable for such actions.”

As regulatory oversight keeps changing, those operating in the digital-asset industry should prioritize compliance with securities laws. The SEC’s latest enforcement action highlights its ongoing commitment to maintaining market integrity and protecting retail investors from deceptive schemes.

These ongoing enforcement actions by the SEC probably make industry players such as Riot Blockchain Inc. (NASDAQ: RIOT) wonder when the authorities will ever enact clear rules that all parties adhere to while conducting their business activities.

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