# The FBI had A Crypto Token!

An episode of [Patrick Boyle On Finance](https://invisiblenetwork.ai/podcast/1547740313), 12 Oct 2024, 20 min.

Audio: https://traffic.megaphone.fm/APO1402338819.mp3

The FBI created their own crypto token called NexFundAI as part of an investigation into price manipulation in crypto markets. As a result of the investigation, the SEC charged three “so-called market makers” and nine individuals for allegedly engaging in schemes to boost the prices of certain crypto assets. The Department of Justice charged 18 people and entities for “widespread fraud and manipulation” in crypto markets. Patrick's Books: Statistics For The Trading Floor: https://amzn.to/3eerLA0 Derivatives For The Trading Floor: https://amzn.to/3cjsyPF Corporate Finance: https://amzn.to/3fn3rvC Ways To Support The Channel Patreon: https://www.patreon.com/PatrickBoyleOnFinance Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle Visit our website: https://www.onfinance.org Follow Patrick on Twitter Here: https://twitter.com/PatrickEBoyle Additional Links: SEC Press Release: https://www.sec.gov/newsroom/press-releases/2024-166 U.S. Attorney's Office, District of Massachusetts: https://www.justice.gov/usao-ma/pr/eighteen-individuals-and-entities-charged-international-operation-targeting-widespread Link To Report Losses: https://forms.fbi.gov/seeking-information-in-cryptocurrency-investment-fraud-investigation Business Inquiries ➡️ sponsors@onfinance.org Patrick Boyle On Finance Podcast: Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313 Google Podcasts: https://tinyurl.com/62862nve Join this channel to support making this content: https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join

## Transcript

[0:00] It's not so long ago that celebrities who wanted to make
[0:03] money in crypto did so by simply endorsing other people's tokens,
[0:07] NFTS, or even Ponzi schemes or crypto exchanges as they used to
[0:12] be called. People like Matt Damon, Tom
[0:15] Brady, Larry David, and that little fella from the Lord of
[0:18] the Rings movies fronted huge advertising campaigns for crypto
[0:22] exchanges. I was disappointed to learn
[0:25] earlier this year from court documents that Snoop Dogg was
[0:29] paid around $1 million to perform as a board ape at the
[0:34] MTV Video Music Awards in 2022. I suppose it makes sense that
[0:39] they paid him to do this, as a quick look at YouTube shows that
[0:44] the official music video of his board ape song only got 3600
[0:49] views over the last two years, and at least 3500 of those views
[0:54] were me. It's basically been on repeat
[0:57] play here the whole time. Well, that and the vacuum
[1:02] cleaner song by Razzle Khan. Everything changed in 2024 when
[1:07] celebrities like Caitlyn Jenner and Iggy Azalea launched their
[1:12] own meme coins. Yesterday I learned that
[1:15] launching your own meme coin had become so mainstream that the
[1:19] FBI even launched their own token called Next Fund AI,
[1:25] which, let's be serious, is a terrible name for a crypto
[1:29] token. What's wrong with Fed token or
[1:31] FBI ENU? Maybe those ones were already
[1:35] taken. According to the SEC, Next Fund
[1:39] AI traded for only 9 hours, which doesn't sound long, but it
[1:44] does beat Rishi Sunak's NFT for Britain, which no one seems to
[1:49] talk about anymore. So there's that at least.
[1:52] Go USA. The FBI created this token which
[1:57] operated on the Ethereum blockchain along with a fake
[2:01] company in order to ensnare crooks, which seems a bit mean
[2:06] spirited of them. They apparently met up with
[2:09] crypto market makers to discuss employing their services.
[2:14] One of the defendants allegedly described himself to the FBI
[2:18] agents as the mastermind, explaining that his company used
[2:23] bots to buy and sell at the same time on centralized exchanges to
[2:28] generate trading volumes. This is known as wash trading
[2:32] and is illegal in securities markets, according to the press
[2:37] releases. As late as last week, this
[2:40] market makers bots were still making millions of dollars worth
[2:44] of wash trades in crypto markets before being deactivated at the
[2:48] request of law enforcement. According to a Department of
[2:52] Justice press release, 80, 18 individuals and entities have
[2:57] now been charged for widespread fraud and manipulation in the
[3:01] cryptocurrency markets. I mean, who knew that this sort
[3:05] of thing was going on? And gentlemen, you can't fight
[3:08] in here. This is the war room.
[3:11] Charges were unsealed this Wednesday against the leaders of
[3:14] four cryptocurrency companies, 4 cryptocurrency financial
[3:18] services firms known as market makers, and employees at those
[3:23] firms. Apparently, 4 defendants have
[3:27] pleaded guilty, another has agreed to plead guilty, and
[3:31] authorities apprehended three other defendants in Texas, the
[3:35] United Kingdom, and Portugal this week.
[3:38] More than $25 million in cryptocurrency has been seized
[3:43] and multiple trading bots responsible for millions of
[3:46] dollars worth of wash trades for approximately 60 different
[3:50] cryptocurrencies have been deactivated. 3 market makers, ZM
[3:56] Quant, CLS Global and Mytrade, along with their employees are
[4:01] charged with allegedly wash trading and or conspiring to
[4:05] wash trade on behalf of the FBI cryptocurrency company and token
[4:11] created as part of the investigation.
[4:14] A fourth market maker got bid. Its CEO and two of its directors
[4:19] are also charged for perpetrating a similar scheme.
[4:24] Zeke Fox at Bloomberg explained in an article earlier this week
[4:28] that the investigation started with an SEC tip about a crypto
[4:32] company called Setama, which we'll come back to shortly.
[4:36] Investigating Setama LED authorities to cooperating
[4:40] witnesses who helped them set up the FBI crypto token Next Fund
[4:45] AI, and in video calls and Telegram chats, market makers
[4:50] offered to manipulate the price of this token for the FBI, which
[4:54] it turns out was a bit of a mistake.
[4:57] If they would only have implemented some sort of know
[5:00] your customer type rules, maybe they wouldn't have all of these
[5:03] problems right now, there are a number of court cases to look at
[5:08] here, but according to the documents, the defendants are
[5:11] accused of making false statements about their tokens
[5:14] and executing wash trades in those tokens to create the
[5:18] appearance of trading activity that would make the tokens look
[5:22] like good investments. Now of course that's playing
[5:25] fast and loose with the meaning of the term investment, but
[5:29] we'll keep going. There are dog teamed
[5:31] cryptocurrencies coming up and for some reason that's always
[5:36] where these stories end up. According to the court
[5:39] documents, the deceptive tactics employed attracted new investors
[5:44] and purchasers and resulted in an increase in the tokens
[5:47] trading prices. The defendants are alleged to
[5:50] have sold their tokens at the pumped up prices and the largest
[5:54] of these tokens, Satama, at one point had a multi billion dollar
[5:59] market value value. I did a quick check and it might
[6:02] surprise you to learn that the price of that token was up 17
[6:06] 1/2 percent yesterday, a full day after the announcement of
[6:10] these charges. With a market cap of just over
[6:13] $11 million, these guys don't seem awfully smart to me.
[6:18] The same people appear to have another coin called SATA Chain
[6:23] Coin, and it's not a star performer either.
[6:26] It seems to be down 98.77% since it was first launched, which
[6:32] means that if you buy it now, it can only fall by an additional
[6:37] 100%, which is the worst case scenario.
[6:40] There is, of course, a website and a Twitter account.
[6:43] We we should probably check those out right on Twitter, they
[6:47] have a pin tweet that says something, something innovation
[6:51] and then a little spaceman animation with logos on all of
[6:55] the planets. And this is all important stuff.
[6:58] You're not going to hit a multi billion dollar market cap
[7:01] without a decent space themed animation.
[7:04] If we Scroll down, it says that business operations will
[7:08] continue as usual, which is great stuff.
[7:11] It then says that we're aware of the allegations.
[7:14] Thank you for your patience. That's never really a good sign
[7:18] is it? I guess it's better than when
[7:20] that little fella from the Lord of the Rings started tweeting
[7:23] out those single letter tweets every few hours till it spelled
[7:27] out what happened and that wasn't really confidence
[7:30] inspiring at all. These guys are getting much
[7:33] better now, it says here. We have been advised that no
[7:38] additional information regarding the allegations against Manny
[7:42] the Hit Man will be available until next week.
[7:45] And that seems a bit worrying. Let's see who Manny the Hit Man
[7:50] is. He sounds intimidating.
[7:52] Oh look, it's a nerd. A nerd in a corporate logo
[7:55] T-shirt. The worst kind.
[7:57] It's really only a nerd who's going to give himself a nickname
[8:00] like Manny the Hitman. He'll come up with that one
[8:03] himself. It's a bit like that guy who
[8:05] pretends that other people call him Mr. Wonderful.
[8:09] No one calls him that. This kind of reminds me of that
[8:12] episode of Seinfeld where George Costanza wanted to be given the
[8:16] nickname T-bone, but instead got nicknamed Coco the Monkey.
[8:21] It's lucky that nothing like that happened to a money that
[8:23] can't money the hitman. Anyhow, let's check out their
[8:27] website. It says here that we can talk to
[8:30] an expert that might be helpful. Oh, it says error for site
[8:35] owner, invalid domain for site key.
[8:39] I feel they misled us a bit on Twitter when they said that
[8:42] business operations would continue as usual.
[8:45] I don't know what to tell you here.
[8:46] I wonder if they blew the whole corporate budget on that little
[8:49] Spaceman animation for Twitter. This isn't exactly confidence
[8:54] inspiring. So let's go back to the legal
[8:57] complaints. So the cryptocurrency companies
[9:00] are accused of hiring financial services firms, another term
[9:04] that's being used quite loosely here, that they call market
[9:08] makers to wash trade their tokens in exchange for payment.
[9:12] Now one of the defendants who's pleading guilty described their
[9:16] market making to a prospective client by explaining that the
[9:20] objective on the secondary markets is to find other buyers
[9:24] from the community, people you don't know about or don't care
[9:28] about, which is a interesting definition of community because
[9:33] he says we have to make these other buyers lose money in order
[9:38] for us to make profit. So that's a thing.
[9:42] It can't all be scamming and manipulation though, can it?
[9:46] Yeah, it can. Another crypto market maker is
[9:49] alleged to have told potential clients that if you guys have
[9:52] requirements on the price, for example, like pump the price
[9:56] from $1.00 to $2.00, we'll give you a plan.
[9:59] And that seems helpful, I suppose, but also really quite
[10:03] illegal. OK, So what does a market maker
[10:07] do in traditional finance? Is it the same sort of thing?
[10:11] Well, no, it's not. Different exchanges are
[10:14] organized differently. The New York Stock Exchange has
[10:17] individual security specialists who work on the trading floor
[10:21] and specialize in facilitating trades in the specific stocks
[10:24] that they cover. Electronic markets like NASDAQ,
[10:28] where there's no physical trading floor, rely on a system
[10:31] where there are multiple market makers who keep an inventory of
[10:36] the stocks that they make markets in, and they stand ready
[10:39] to either buy or sell securities for Oregon from their own
[10:42] accounts to their customers. The average number of market
[10:47] makers for a stock on the NASDAQ is 14, and market makers are
[10:51] required to give A2 sided quote, meaning that they must state a
[10:56] firm bid and ask price that they're willing to honour.
[11:00] Once an order is received from a buyer, the market maker fills
[11:03] them with shares from their own inventory to complete the order.
[11:07] What they don't do, which they do seem to do in crypto, is have
[11:12] lots of bought accounts that buy and sell stock in wash trades,
[11:15] slowly manipulating the price so that it can be dumped on a
[11:19] retail investor on a Stock Exchange.
[11:22] Market makers make their money by capturing the bid ask spread
[11:26] when investors trade with them and they compete with each other
[11:29] by giving good prices to investors so that they can get
[11:33] fills and capture that spread. In crypto, according to the
[11:37] Seca, token issuer pays the market makers to provide on
[11:42] demand market manipulation and I should note that the SEC press
[11:47] release refers to them as so-called market makers, which I
[11:51] guess is different to a market maker, the US Attorney's Office
[11:55] wrote in their press release. The message today is if you make
[12:00] false statements to trick investors, that's fraud.
[12:03] They go on to say that the four crypto market makers and their
[12:07] employees are accused of spearheading a sophisticated
[12:11] trading scheme that built honest investors out of millions of
[12:15] dollars. Once again, I worry that we
[12:18] shouldn't be calling the people who put their savings into
[12:21] something called Next Fund AI investors.
[12:25] There's an argument that the kind of person who thinks that
[12:27] this is a good investment was going to lose their money
[12:30] anyhow. And in a way, these so-called
[12:33] market makers just provided liquidity to allow them to lose
[12:38] their money a little bit faster, which possibly leads to a more
[12:42] efficient market. The SEC explains that the FBI
[12:46] retained a so-called market maker called ZM Quant to support
[12:51] trading in Next Fund AI, which was sold as a way to so-called
[12:56] invest in early stage so-called artificial intelligence
[13:01] projects. Now look, many people would say
[13:04] that the best way to invest in early stage AI projects is to
[13:08] find some early stage AI projects and invest in them, not
[13:13] by a crypto token that the owners of these early stage AI
[13:17] projects will not have heard of. It seems like a convoluted
[13:22] approach, but then again the comments in my videos are often
[13:25] filled with people saying that I just don't get crypto.
[13:29] Employees of ZM Quant are accused of counselling the
[13:32] backers of Next Fund AI on how to artificially drive up the
[13:36] price of the token before cashing out at the peaks.
[13:40] According to the SEC complaint, ZM Quant's trades amounted to
[13:44] more than 80% of Next Fund AIS trading volumes.
[13:48] And I guess the other 20% were so-called investors.
[13:53] All right, maybe I've been hard on the so-called investors.
[13:57] Who am I to criticize someone who committed their savings to
[14:00] early stage AI companies in a contrived manner so that they
[14:05] could build an AI so powerful that we have to flee to Mars to
[14:09] escape it's wrath? What else were so-called
[14:13] investors being scammed with? Ah yes, Robo Enu.
[14:18] Sorry, I feel dumb even knowing that this exists but yeah
[14:22] so-called investors in so-called robo Enu got so-called ripped
[14:27] off allegedly. Do you need me to even tell you
[14:30] what Robo Enu is or can you already guess?
[14:35] OK, they have a website, and I'm starting to notice that all of
[14:39] these websites look exactly the same, it says.
[14:42] Inspired by NASA's ambitious plan to launch robo dogs to
[14:46] Mars, Robo Inu Finance aims to build an efficient, circular
[14:52] ecosystem that brings together the best fintech resources.
[14:57] Join us and be a part of something revolutionary.
[15:01] And I can't help but think that if they said join us and be part
[15:04] of something stupid they might have done a little bit better.
[15:08] There's nothing about their so-called mission statement that
[15:11] makes any sense or would involve anything revolutionary.
[15:15] Just be straight up about it being another uninspired dog
[15:18] teamed cryptocurrency. Tell the so-called investors how
[15:22] stupid you think they are and maybe they'll just give you
[15:25] their money. Anyhow, I really should be
[15:28] working in crypto marketing, but that's not what I do.
[15:32] According to the complaint, Robo Enu was promoted by a woman
[15:36] named Vai Pham who also helped launch Setama.
[15:41] So maybe she's friends with Manny the Hitman.
[15:44] I imagine at crypto conferences she probably told people that
[15:47] she was mentored by Manny the Hitman to impress them.
[15:50] But anyhow, Pham it seems contacted a so-called market
[15:55] maker called Gotbid as despite having spent 250,000 and actual
[16:01] dollars on marketing, the response from so-called
[16:05] investors had not been satisfactory.
[16:08] So she and her team, I mean do these people have teams?
[16:14] OK. She and her team said that they
[16:18] were thinking about increasing the volume via so-called market
[16:23] maker. She explained in a group chat,
[16:26] which the FBI have access to, that the purpose of hiring a
[16:30] socalled market maker was to increase and maintain trading
[16:34] volume to attract so-called investors to her stupid token.
[16:39] The complaint says that got bit personnel confirmed that they
[16:43] understood that this was the purpose and they communicated
[16:47] with FAM and her band of merry men about ways to create
[16:51] so-called investor FOMO through artificial trading volume.
[16:56] A fellow in the Telegram chat called Vatislaw Trader stated he
[17:01] was trying to trigger organics, which the SEC helpfully explains
[17:06] means individuals or entities other than Gotbid to buy her God
[17:11] forsaken robot dog themed cryptocurrency.
[17:14] So bag holders basically are members of the community who can
[17:18] be counted on to hold bags. Fam and her team allegedly paid
[17:24] Gotbid 3 to $6000 per month to allegedly manipulate the trading
[17:29] volume of Robo Enu through automated wash trading on
[17:33] Bitmart and Uniswap. The guy named Fedor Kedrov from
[17:38] Gottbed allegedly told Pham and her team that he could achieve
[17:43] any volume you want and recommended that Robo Enu start
[17:48] with $200,000 in artificial daily volume.
[17:52] A month or so later, Vadislav Trader posted that organic
[17:56] volume accounted for less than 10% of Robo Enu's total trading
[18:01] volume. The rest was Gottbed trading
[18:04] with itself through automated wash trade.
[18:06] Waiting. I found an interview with Vifam
[18:09] on YouTube where she seems to be suggesting that small businesses
[18:13] could pay staff salaries in Robo Enu.
[18:17] Or small businesses who are able to you know to pay the salary in
[18:22] in robo enu financial gain or even accept abif as a form of
[18:26] payment. Now I can't help but feel that
[18:29] that might be a deal breaker for most employees, but who knows?
[18:33] And maybe the rest of us are fools for accepting money that
[18:36] we can spend a salary. Maybe in a few years time Robo
[18:40] enu will be the new reserve currency.
[18:43] In the comments section here will be filled with people
[18:45] saying this aged like milk. Anything could happen.
[18:51] Wait a minute, is this? Is this what FOMO feels like?
[18:57] I don't know now the US Attorneys Office posted a link
[19:02] in their press release to a form for so-called investors in these
[19:07] so-called crypto currencies to fill out.
[19:10] So I'll leave a link to that in the description.
[19:12] If you lost so-called money trading, these so-called tokens,
[19:16] you can fill out that form now. Just so crypto investors don't
[19:20] get angry at me in the comments section, I'll say that not all
[19:24] crypto is fraud. Even in these terrible examples,
[19:27] we can still see that up to 10% of it is also bag holders or
[19:33] organics. Thanks for tuning into this
[19:36] week's so-called podcast. I recently changed podcast host
[19:40] to Spotify. I told them that I wanted the
[19:43] same deal as Joe Rogan is getting and they agreed, but
[19:46] they said that because my podcast gets fewer listens,
[19:49] they'd pay me $100 million less than him, which seems fair.
[19:55] There are a few new features though, such as the ability to
[19:58] leave a comment, and this is the first episode where you can even
[20:01] watch a video version of it on Spotify.
[20:04] If you want to so do leave a comment to say hi and I'll talk
[20:09] to you next week. Bye.

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