A UAE-based self-styled crypto market maker has admitted to orchestrating an elaborate wash trading scheme that fooled U.S. investors by generating millions in fake trading volume through automated self-dealing on Uniswap.
CLS Global is expected to plead guilty to market manipulation and wire fraud charges after falling for an FBI sting operation, federal prosecutors in Boston announced Wednesday.
Under the plea agreement, CLS Global is required to pay penalties and forfeited assets exceeding $428,000. The company will also face a total exclusion from U.S. crypto markets and must file annual compliance certifications.
In October last year, the FBI initiated “Operation Token Mirrors,” which was executed with the prospect of baiting and catching fraudulent entities within the industry.
During the probe, the FBI launched a fake crypto called NexfundAI and coordinated with federal authorities to bring down CLS Global and two other “so-called market makers.” That included nine individuals involved in manipulating crypto assets “offered and sold as securities.”
At the time, the charges against CLS Global and the other firms involved represented the first set of criminal charges against financial services firms for market manipulation and wash trading in the crypto industry.
Volume generation algorithms
CLS Global, which employed over 50 people outside the U.S., marketed itself as a legitimate market maker serving over 500 clients since 2017.
The company states on its official website that it is partnered with prominent centralized exchanges, including Binance, Bybit, KuCoin, Bitfinex, OKX, Bitget, and Crypto.com, among others.
But behind the professional façade, prosecutors said CLS Global operated a technical infrastructure specifically designed to manipulate crypto markets.
A sophisticated set of custom “volume generation” algorithms reportedly executed trades between multiple wallets to create the illusion of organic market activity.
“It’s very hard to track,” a CLS Global employee was cited as boasting during recorded video meetings, explaining their volume generation algorithm. “We’ve been doing that for many clients.”
Between August 23 and September 18, 2024, automated systems created $595,000 in artificial volume for the FBI’s token, accounting for 98% of its overall trading activity, based on data from an SEC complaint.
“I know that it’s wash trading, and I know people might not be happy about it,” the employee admitted during meetings with undercover agents cited by the U.S. Attorney’s Office, showing their awareness of the scheme’s illegal status.
While major centralized exchanges were marketed as business partners by CLS Global, Uniswap was the only one used as a venue for the operation before law enforcement “disabled” the token.
Uniswap did not immediately return a request for comment.
Edited by Sebastian Sinclair
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https://decrypt.co/302207/uae-crypto-firm-admits-wash-trading-uniswap-fbi-sting-operation
