ZachXBT exposes company asking for promo after guilty plea in SEC fraud case

Crypto security sleuth and blockchain expert ZachXBT has mentioned that CLS Global, a firm that recently pleaded guilty to fraud, approached him for a promo. The cryptocurrency market-making firm was charged by a federal grand jury in Boston on January 21, according to a notice from the US Department of Justice (DOJ).

ZachXBT, replying to the platform’s February 14 “Happy Valentine’s Day” post today, shared a screenshot of CLS Global’s message asking him for a “potential collaboration on X.”

“Asking me for paid promo when you just plead guilty to fraud charges by the SEC late last year?” the security expert questioned.

Screenshot of a message CLS Global sent to ZachXBT on X. Source: @zachxbt (X/Twitter)

The charges the on-chain sleuth was referring to were from an October 9, 2024 filing by the US Securities and Exchange Commission (SEC), which accused the firm of engaging in wash trading practices. The company admitted to participating in a scheme that involved generating artificial trading volume to mislead investors.

In its plea agreement, the UAE-based financial firm agreed to pay $428,059 in fines and forfeited assets, while also being permanently barred from operating within US crypto markets.

ZachXBT recalls undercover market manipulation investigations

US Justice Department’s notes disclosed how authorities launched an undercover operation to expose CLS Global’s fraudulent trading tactics. Investigators created a fake cryptocurrency project, NexFundAI, complete with a website and an Ethereum-based token listed on Uniswap.

The operation revealed that CLS Global had agreed to provide market-making services for NexFundAI, including wash trading, an illegal practice that inflates trading volume to attract unsuspecting investors.

CLS Global was reportedly implementing a “Market Making proposal” that included a section called “Volume Support.” This section featured a depiction of the CLS Global “dashboard,” which displayed metrics such as “total volume,” “CLS volume,” and “external volume.”

Traders employed by CLS Global then used the company’s trading wallets to buy and sell the NexFundAI token on the Uniswap exchange. They also provided reports detailing the trading activity generated by the “volume generation algorithm.”

During video conferences between July and August 2024, a CLS Global employee described how the company used an algorithm to conduct self-trades from multiple wallets, making it appear as though real investors were actively trading the token.

“It’s very hard to track,” the employee boasted. “We’ve been doing that for many clients.”

Chainalysis: Wash trading is rampant in the US

In a January 29 Chainalysis research, updated last Thursday, the data analytics platform detailed the SEC’s charges against four market makers, ZM Quant, Gorbit, CLS Global, and MyTrade, for orchestrating trading activities that sought to swindle millions of funds from crypto investors.

The Internal Revenue Service (IRS) later revealed that the wash trading scheme involved at least 18 individuals and entities with operational links in the UK and Portugal. These market makers allegedly used automated trading bots to create the illusion of liquidity, deceiving investors into believing that certain tokens were in high demand.

Although CLS Global’s specific methods were exposed through the NexFundAI sting operation, the broader practice of artificial volume generation is yet to be fully uncovered.

“Currently, most of the academic research on wash trading in crypto has been focused on centralized exchanges (CEXs), where possible motivations for inflating trade volumes include attracting users or climbing leaderboards. Unlike trading on CEXs, doing so on decentralized exchanges (DEXs) incurs gas fees, making wash trading potentially more expensive; nonetheless, such activity still exists,” the report expounded.

Chainalysis cited Volume.li, a service that provides wash trading bots to customers seeking to inflate token trading activity on DEXs. While not linked to the SEC cases from last October, Volume.li’s business model sheds light on how similar schemes operate.

The service offers various pricing tiers, allowing clients to purchase trading volume ranging from $50 to $100,000 within a 24-hour period. A bot generating $100,000 in daily volume costs 0.212 ETH and executes 100 rapid buy-and-sell transactions to simulate real trading.

“As Volume.li exemplifies, even when our starting point is off-chain, pairing open-source research on platforms of interest with our own heuristics can yield powerful insights about potential on-chain market manipulation.”

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