FBI Made a Profit From Ethereum Token Created to Catch Fraudsters

The most discussed coin on Crypto Twitter over the past day arguably isn’t Bitcoin or some novel asset rocketing to new heights—it’s an Ethereum token created by the FBI to catch scammers, and one that made the agency a profit before trading was disabled.

The Department of Justice (DOJ) unveiled a sweeping criminal case against 14 individuals and four crypto firms Wednesday. Gotbit, ZM Quant, CLS Global, and MyTrade were all accused of misconduct related to market manipulation—inflating tokens’ prices and volumes on demand.

Over the course of its investigation, the DOJ identified around 60 cryptocurrencies allegedly manipulated by defendants’ wash-trading bots. That included a “token created at the direction of law enforcement” for a fake crypto company dubbed NexFundAI, the DOJ said Wednesday.

The token was used to identify, disrupt, and bring alleged fraudsters to justice, according to the special agent in charge of the FBI’s Boston division, Jodi Cohen, who called the FBI’s deception “unprecedented” in a press release.

On-chain data shows that the FBI’s token, NexF, was created in late May, and that law enforcement apparently profited from the coin just before its trading was disabled 21 days ago.

When a liquidity pool for NexF was created on the decentralized exchange Uniswap, the token’s deployer supplied around 5 ETH in liquidity, worth $12,000 at the time, alongside 50 billion NexF. When 43 billion NexF was removed from the pool months later, the wallet gained approximately 11 ETH in liquidity back that was worth $26,500—netting the token’s deployer a $14,500 profit.

Two weeks after disabling NexF’s ability to trade, the wallet shuffled $30,000 worth of Ethereum to a new wallet. And the sum has remained there since, apparently under the FBI’s control.

Nick Vaiman, co-founder and CEO of blockchain visualization startup Bubblemaps, described the FBI’s apparent gains to Decrypt as “fairly negligible”—but it is a surprising result for a token designed to target fraudsters.

The FBI did not immediately respond to a request for comment from Decrypt.

In a statement, the DOJ said that three market makers had been charged with misconduct related to wash trading NexF, meaning all three had engaged with the fake coin.

According to a criminal complaint filed against a company called CLS, one of the firms accused of market manipulation, the FBI’s fake token was traded artificially for its last few weeks. CLS traders allegedly bought and sold NexF among bots from August 23 to sometime after September 5.

CLS allegedly created thousands of dollars of fake trading volume for NexF until the FBI eventually pulled the plug. As the DOJ’s complaint states, “the trading function of the NexFundAI token was disabled at the direction of law enforcement.”

Edited by Andrew Hayward