FBI’s token sting operation faces copyright controversy over MIT license misuse

On Oct. 9, the US Federal Bureau of Investigations (FBI) announced it took an “unprecedented step” of creating a crypto token, NexFundAI, to catch individuals accused of manipulating crypto markets and inflating token values.

However, concerns have surfaced regarding the smart contract tied to NexFundAI, with analysts pointing out potential copyright violations and the unintentional exposure of FBI-controlled wallets.

The FBI token

Earlier this year, the authorities revealed that ZM Quant, a market maker, was hired to support trading for NexFundAI.

This token was promoted as an investment vehicle for early-stage AI projects. Federal authorities later accused ZM Quant of advising NexFundAI backers on how to artificially inflate the token’s price, creating a pump-and-dump scheme.

ZM Quant accounted for over 80% of NexFundAI’s trading volume in May. Unbeknownst to the market maker, NexFundAI was part of a federal sting operation to expose fraudulent crypto trading.

The authorities highlighted that ZM Quant explained how its trading bots could execute up to 20 trades per minute, inflating the token’s price and trading volume. ZM Quant allegedly used several wallets to make the trades appear legitimate.

NexFundAI was only traded on May 31, generating $4,600 in artificial volume.

Copyright concerns

On-chain investigators have flagged potential copyright violations involving the FBI’s NexFundAI token.

On Oct. 9, a pseudonymous developer known as “cygaar” claimed that the FBI’s smart contracts for the token violated the MIT License, opening the door to copyright infringement claims.

The developer noted that the FBI appeared to have copied several OpenZeppelin libraries without adhering to the MIT License requirements, which mandate including a permission notice in all substantial portions of the software.

According to Cygaar:

“[The FBI] clearly copy pasted several of OpenZeppelin’s libraries (which use the MIT License), but don’t have a license on the code yourself.”

The developer pointed out that while legal action seems unlikely, the situation highlights an ironic oversight by the FBI.

Doxxed wallets

In addition to the copyright concerns, the FBI had inadvertently exposed its wallets which could impact its investigations into other cases.

Coinbase director Conor Grogan revealed that the wallet used to seed NexFundAI distributed capital across several wallets and executed trades.

Grogan also discovered that these wallets recently transferred funds to platforms like Binance, Tokenlon, Zixipay, and HTX. One wallet reportedly holds tokens like EthereumMax and Shiba Inu’s BONE and 1.734 billion tokens of “Pornrocket.”

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