SEC Charges Crypto Firms for Wash Trading Schemes

The SEC charged "three companies purporting to be market makers and nine individuals for engaging in schemes to manipulate the markets for various crypto assets being offered and sold as securities to retail investors." The SEC said "the schemes were intended to induce investor victims to purchase the crypto assets by creating the false appearance of an active trading market for them."

According to the Complaints separately filed in the United States District Court for the District of Massachusetts:

• a crypto asset firm and its business development manager conducted extensive wash trading. The SEC alleged that during one trading period, these trades accounted for 98 percent of the asset's total trading volume. The SEC alleged that the business development manager referred to the trading as "self-trading" and indicated that the goal was to fabricate a market appearance to attract investor interest. 

• a consulting firm and its director conducted extensive wash trading.The SEC charged that the firm manipulated daily trading volumes into the millions to create the illusion of market interest. The SEC alleged that the director discussed strategies to "pump" prices for a client launching a new crypto asset, and that he emphasized the ability to achieve desired trading volumes, including an artificial daily volume of $200,000. The SEC said the firm coordinated its trading with marketing efforts, inflating volumes ahead of promotional events to generate hype.
• an individual involved in the launch of the crypto asset "Saitama Inu," which was marketed as a security promising "passive income" and financial empowerment, "manipulated the price and trading volume of that crypto asset through coordinated purchases…"
• four individuals marketed a dog-themed crypto asset conducted wash trades, including making "small purchases of [the asset] through multiple crypto asset wallets."
• a firm and two of its executives engaged in extensive wash trading and other manipulative practices, inflating the prices and trading volumes of its clients' crypto assets for a monthly fee.

The SEC charged these defendants with violations of SEA Sections 9 ("Prohibition against manipulation of security prices") and 10 ("Regulation of the Use of manipulative and deceptive devices") and Rule 10b-5 ("Employment of manipulative and deceptive devices"); and SA Sections 17 ("Fraudulent interstate transactions") and 5 ("Prohibitions relating to interstate commerce and the mails").

In the Complaints, the SEC said it is seeking (i) permanent injunctions from continuing the alleged violations of securities laws; (ii) disgorgement of profits; (iii) civil penalties; (iv) orders prohibiting defendants form participating in any issuance, purchase, offer, or sale of securities in the future; and (v) bars to defendants from acting as officers or directors of any issuer with registered securities.