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Jimmy Aki
Author
Jimmy Aki
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Why Trust Cryptonews
Key Takeaways:
- CLS Global was penalized for manipulating token trading volumes on decentralized platforms.
- The FBI now uses fake tokens to catch criminals in crypto markets.
- Cross-border enforcement cooperation undermines decentralization as a shield against regulators.
A U.S. federal court in Boston fined United Arab Emirates (UAE)-based CLS Global $428,000 after the crypto market-making firm pleaded guilty to engaging in an extensive wash trading scheme.
The April 2 ruling also bars CLS Global from offering services within the United States for a three-year probationary period.
Algorithmic Deception: When Code Becomes the Tool for Market Fraud
In January, CLS Global admitted to executing wash trades on Uniswap, a leading decentralized exchange.
The U.S. Department of Justice (DOJ) revealed that the firm was one of three entities that agreed to manipulate trades for “NexFundAI,” a fictitious Ethereum-based token created by the Federal Bureau of Investigation (FBI) in May 2024.
As part of the sting, law enforcement uncovered that CLS Global used automated algorithms to simulate organic trading by self-trading across multiple wallets.
This was done to give the illusion of demand and attract real investors to purchase the tokens.
The DOJ disclosed that from February to September 2021, CLS Global executed over 80,000 wash trades.
These trades involved the same buyer and seller, creating a false perception of market activity.
According to the court filings, the company and its U.S.-based affiliate, Clarity Ventures, also misrepresented their trading behavior to exchange operators.
CLS Global was charged in a September 2024 indictment, which included one count of conspiracy to commit market manipulation and wire fraud and a separate count of wire fraud.
Ian McGinley, Director of Enforcement at the Commodity Futures Trading Commission (CFTC), emphasized the seriousness of the case:
“Wash trading undermines trust in the marketplace and harms both investors and legitimate market participants. This case demonstrates that the CFTC will not tolerate such manipulation—regardless of where a firm is located.”
Wash trading remains illegal across financial markets and is particularly difficult to monitor on decentralized exchanges (DEXs) due to automated market maker (AMM) models, which rely on liquidity pools instead of traditional order books.
Are Market Makers Helping or Hurting Crypto Markets?
The CLS Global case is the latest in a string of incidents exposing fraudulent practices by crypto market makers.
In the fast-paced crypto space, market makers are critical to the smooth trading and stability of prices.
These entities provide liquidity to a cryptocurrency exchange by offering to buy and sell orders.
They’re intended to enhance market efficiency and depth. Yet, some appear to be undermining market integrity instead. Consider Celsius. In 2023, its executives allegedly leveraged Wintermute to inflate their native token valuation.
Binance added to these concerns with a troubling revelation. In May 2024, they fired an employee who claimed to have found evidence of market manipulation by DWF Labs, another market maker.
The allegations suggest DWF Labs executed $300 million in pump-and-dump schemes on tokens like $YGG, though DWF Labs has disputed these claims.
The pattern seems to have extended beyond companies.
Earlier this year, the CFTC won a $130 million judgment against the founders of EmpiresX, a fraudulent crypto investment platform.
Meanwhile, Chainalysis’ January 2025 Report also affirmed the widespread practice of wash trading in the crypto sector.
The report revealed that crypto trading activities saw at least $2.57 billion in wash trading volume in 2024, especially across ERC20 and BEP20 tokens on DEXs, facilitated mainly by AMM-based systems.
Frequently Asked Questions (FAQs)
No, wash trading also occurs in political prediction markets. Polymarket is a good example, and a recent Fortune report attributed up to one-third of its trading volume to wash trading.
Yes, researchers from Cornell University recently developed PERSEUS, a tool designed to help wash trading in the crypto market and also track and identify pump-and-dump schemes.
