Cryptocurrency firm founder pleads guilty to fraud after novel FBI probe

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By Nate Raymond

BOSTON (Reuters) – The founder of a cryptocurrency financial services firm pleaded guilty on Wednesday to engaging in a scheme to manipulate the market for digital tokens, including one created at the FBI’s behest to help ferret out fraud in the crypto sector.

Liu Zhou, the self-described “mastermind” behind cryptocurrency firm MyTrade, pleaded guilty in Boston federal court to conspiring to commit market manipulation and wire fraud, just three weeks after authorities announced charges against him, 14 other people and three companies following a novel investigation into the crypto sector.

The probe, dubbed “Operation Token Mirrors,” marked the first time the FBI directed the creation of its own digital token, as well as a fake cryptocurrency company to help bait and catch fraudsters in the market.

Prosecutors said MyTrade was one of three so-called market makers that offered illicit trading services to cryptocurrency companies and, during the sting operation, agreed to help manipulate the market for FBI-backed NexFundAI’s token, which operated on the Ethereum blockchain.

As part of a plea deal, Zhou, 39, agreed to not appeal any sentence of 1-1/2 years in prison or less. He is slated to be sentenced Feb. 27. His lawyer did not respond to requests for comment.

Zhou, who lived in China and Canada, in 2021 founded MyTrade, a British Virgin Islands-registered firm that offered trading-related services to dozens of cryptocurrency companies, including “volume support,” in which bots could be used to manipulate the trading volume of their tokens.

Prosecutors in court papers called that a form of “wash trading,” a type of sham trading designed to artificially inflate an asset’s trading volume or price.

During virtual and in-person meetings in September with purported NexFundAI promoters, Zhou discussed how MyTrade’s bots could be used for purposes including “pump and dumps”, and discussed a plan to manipulate the market for its token.

The FBI approached Zhou following the last of those meetings on Sept. 23 and within a week he had agreed to plead guilty, prosecutors said. Four other people caught up in the investigation likewise have pleaded guilty.

(Reporting by Nate Raymond in Boston, Editing by Alexia Garamfalvi and David Holmes)