In 2024, Bitcoin’s price skyrocketed to nearly $100,000, reaching a historic high. Mainstream tokens like Ethereum also surged, riding the wave of market euphoria. The frenzy was reminiscent of past bull markets: the myth of financial freedom sparked endless debates, new projects sprang up daily, and everyone was chasing that life-changing “100x coin.”

But where there’s hype, there’s risk. At market peaks, scams and worthless tokens often seize the moment. A single misstep can turn an enthusiastic investor into the victim of a con, left holding the bag at lofty prices, filled with regret.

To expose these schemes, the FBI launched a secret operation called “Operation Token Mirrors.” Using a fake project named NexFundAI, the Bureau successfully revealed how “pump-and-dump” manipulation works in the crypto world.

1. The Pump-and-Dump in Action

The NEXF case not only led to the arrest of 18 criminals but also delivered a sobering lesson for investors. Let’s examine the step-by-step anatomy of this scheme through the details of NexFundAI.

Act 1: Creating the Illusion of Prosperity

NexFundAI, a virtual project designed by the FBI, had no real product, technology, or development plan. Yet it was presented as an “AI-powered, next-generation blockchain financial platform,” claiming to revolutionize financial services. The project’s website still exists, now adorned with a prominent FBI warning at the top.

Initially, the NEXF token’s launch was uneventful. But soon after, three “market makers” — ZM Quant, CLS Global, and MyTrade — began conspiring to manipulate its price.

In the token’s early days, most of the supply was concentrated in a few wallets controlled by the manipulators. Their strategy was simple but effective: create an illusion of active trading by executing numerous small transactions, making it appear as though retail investors were enthusiastically buying in.

Simultaneously, the manipulators at ZM Quant placed large fake buy orders — for example, 50,000 NEXF tokens at a high price — to suggest strong demand. These orders were never meant to be filled; they were merely bait for retail traders, a deceptive tactic known as spoofing. As a result, prices began to climb, and the market appeared vibrant.

Act 2: Fueling the Frenzy with Propaganda

As the token’s price rose steadily, the manipulators ramped up their efforts with a PR blitz. Gotbit’s promotion team flooded social media and Telegram groups with sensational news:

• “NexFundAI is about to partner with a top exchange!”

• “Miss this opportunity, and you’ll regret it forever!”

Such messages triggered a fear of missing out (FOMO) among investors. Meanwhile, MyTrade further intensified the illusion by engineering fake trading activity. They used wash trading — self-buying and selling — to artificially inflate the token’s trading volume, making it appear highly in demand.

Gotbit CEO Alexei Andrunin personally monitored these fake transactions via a live spreadsheet, ensuring the fabricated market hype consistently attracted new retail investors.

Prices soared during this phase, and NexFundAI became widely regarded as a “path to financial freedom.”

Act 3: The Frenzied Price Surge

As market enthusiasm reached its peak, CLS Global’s algorithms joined the fray. They deployed automated programs across multiple exchanges to generate even more fake trades. These transactions, designed to appear organic, were actually executed between CLS-controlled accounts. One employee admitted, “The goal wasn’t to trade but to make the token look active and investment-worthy.”

By this stage, NexFundAI’s price had far exceeded its initial value. On social media, some users began touting it as “the next Ethereum.” Retail investors rushed to buy at inflated prices, hoping not to miss out.

Act 4: Spreading Fear to Mask the Sell-Off

Once the price had been artificially inflated to its maximum, the manipulators knew retail enthusiasm had peaked. To avoid triggering a crash by dumping their holdings all at once, they employed a fear-spreading strategy to disguise their exit.

CLS Global-linked accounts began posting alarming rumors on social media:

• “NexFundAI is under regulatory investigation and might soon be shut down!”

• “A major exchange is about to delist NexFundAI!”

These falsehoods caused panic among investors. However, because prices hadn’t started dropping yet, many retail traders hesitated to sell, hoping the rumors were baseless. This hesitation played right into the manipulators’ hands. By spreading fear, they slowed the inflow of new buyers, allowing themselves to gradually offload their holdings.

They sold off their tokens in small batches across multiple accounts to avoid a sudden price crash. During this controlled unloading phase, prices began to dip, but not dramatically. Retail investors mistook this as a minor correction and held on, giving the manipulators even more time to cash out.

Act 5: The Collapse, and the Manipulators’ Escape

Once CLS Global and their co-conspirators had sold most of their holdings, they stopped propping up the price. Without their support, and fueled by growing panic, the market collapsed within hours.

Retail investors watched helplessly as the token’s price plummeted to nearly zero. Liquidity dried up, leaving those who bought in late unable to sell. Meanwhile, the manipulators had already transferred their ill-gotten gains — over $25 million — to secure wallets and vanished from the scene.

In just a few days, the massive sell-off created a supply-demand imbalance that sent NexFundAI’s price crashing. Retail investors suffered heavy losses, while the manipulators walked away with their profits.

2. The Fallout: 18 Arrests, $25 Million Recovered

In October 2024, the FBI announced the conclusion of Operation Token Mirrors, successfully dismantling a transnational crypto market manipulation scheme involving 18 individuals and entities. This marked the first-ever criminal charges against financial service firms for market manipulation in the cryptocurrency industry. Key outcomes included:

• 18 individuals charged, including token company executives, market makers, and tech team members.

• $25 million in illicit gains recovered, with plans to compensate defrauded investors.

• A global crackdown, with arrests made in Texas, the UK, and Portugal, and several suspects confessing.

Liu Zhou, the founder of MyTrade, candidly admitted to clients, “Our goal is to find retail investors in the secondary market — we need them to lose money so we can make it.”

The FBI noted that some involved firms were repeat offenders. From 2018 to 2024, these manipulators exploited regulatory loopholes, orchestrating similar schemes that generated tens of millions in illicit profits.

Jodi Cohen, a special agent at the FBI’s Boston Division, commented, “Cryptocurrency’s cutting-edge technology has met one of the oldest financial scams: the pump-and-dump. We hope this case serves as a wake-up call for investors to understand these schemes and protect their assets.”

Here is an FBI bulletin with more detailed information about this case.

3. Lessons from the NexFundAI Scam

NexFundAI underscores a critical lesson: market hype doesn’t always reflect reality, and trading volume doesn’t always indicate genuine demand. This scam succeeded by creating the illusion of market activity and leveraging aggressive marketing to lure unsuspecting investors into believing they’d found a golden ticket to wealth.

Here’s how to avoid falling victim:

1. Price surges don’t equal value growth. Always scrutinize whether a token’s price increase is supported by tangible progress, such as major product updates or real-world partnerships. If not, it could be pure manipulation.

2. Emotional manipulation is a scammer’s weapon. Be wary of FOMO-driven narratives and hype-filled marketing. Staying rational and analyzing a project’s fundamentals is key to avoiding traps.

3. Choose transparent, regulated exchanges. Scams often exploit small exchanges with weak oversight. Platforms like Coinbase and Kraken, which are strictly regulated, are safer options.

Closing Thoughts: Staying Rational in a Frenzied Market

Chasing opportunities in a hot market is natural. But the NexFundAI case reminds us that the higher the market climbs, the more traps emerge. Scam tokens masquerade as golden opportunities, preying on greed-driven investors.

Every investment decision should be grounded in reason. Ask yourself: Does this project have real value? Is the price surge backed by genuine progress? Don’t let market hype or exaggerated claims blind you to potential risks.

Market booms will come and go, but your ability to stay calm and rational will always be your strongest shield. In the volatile world of crypto, maintaining your composure and making informed decisions is the key to safeguarding your wealth and securing your financial future.

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