In a significant development in the world of cryptocurrency, Liu Zhou, the founder of a financial services company called MyTrade, has pleaded guilty to serious crimes. These include market manipulation and conspiracy to commit wire fraud. This case is especially important because it marks the first time a cryptocurrency “market maker” has admitted to such wrongdoing. The court proceedings took place in Boston, and Zhou’s sentencing is scheduled for February 27, 2025.
What is MyTrade and How Did It Work?
MyTrade was a company that provided various financial services specifically for clients in the cryptocurrency industry. The firm operated through a platform called “MyTrade MM,” where it offered a range of services to help other companies manipulate the cryptocurrency market. One of the most problematic services MyTrade provided was called wash trading.
Wash trading is when a trader buys and sells the same cryptocurrency asset repeatedly to create the illusion of high trading volume. This practice is misleading because it can trick other investors into thinking that a cryptocurrency is more popular or valuable than it really is. Zhou and his firm used computer programs, often referred to as “bots,” to execute these wash trades automatically.
Clients of MyTrade could use a dashboard on the MyTrade MM website to specify how much wash trading they wanted. This service, called “Volume Support,” was designed to help clients inflate the perceived value of their cryptocurrencies. However, this type of trading is illegal in the United States and violates securities laws.
The Undercover Investigation
The illegal activities of MyTrade came to light through an undercover operation conducted by law enforcement. To catch the firm in the act, investigators created a fake cryptocurrency company named NexFundAI. This company had a website and an Ethereum-based token, which is a type of digital asset, that was even traded on a popular exchange before it was disabled by the authorities.
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During conversations with people involved in the fake NexFundAI company, Liu Zhou explained how MyTrade MM worked. He talked about a process called self-trading, where a buy and a sell occur within the same second. Zhou even mentioned how the bots could be used to execute strategies known as “pump and dumps.” This means artificially increasing the price of a cryptocurrency to attract other investors and then selling it at a profit, causing those who bought in later to lose money.
Zhou’s admissions were shocking. He openly discussed the goal of finding buyers who were unaware of the manipulation, stating that their profits relied on making those buyers lose money. At its peak, MyTrade MM was executing millions of dollars in wash trades daily across about 60 different cryptocurrencies.
Legal Consequences and What Happens Next
As a result of his guilty plea, Liu Zhou faces serious legal consequences. He is charged with conspiracy to commit market manipulation and wire fraud, which could lead to a prison sentence of up to five years. In addition to prison time, he could face supervised release for up to three years and fines that could reach $250,000 or even twice the amount gained or lost during the fraud. Furthermore, the court may also impose restitution, meaning Zhou could be required to pay back some of the money lost by investors.
As part of the plea agreement, MyTrade has been ordered to stop its wash trading services immediately. The company must also permanently deactivate the bots that were responsible for conducting these fraudulent trades. Additionally, MyTrade is required to place a warning on its website stating that “Volume support is a form of wash trading and illegal under the laws of the United States.” This statement aims to inform users about the illegal nature of the practices they were engaging in.
The announcement of Zhou’s guilty plea was made by Acting United States Attorney Joshua S. Levy and Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division. The case was prosecuted by Assistant U.S. Attorneys from the Securities, Financial & Cyber Fraud Unit.
This situation highlights the growing attention law enforcement is paying to the cryptocurrency industry, particularly regarding illegal practices. The guilty plea of Liu Zhou serves as a reminder of the importance of transparency and honesty in financial dealings, especially in a rapidly evolving market like cryptocurrency.
