back to article FBI created a cryptocurrency so it could watch it being abused

The FBI created its own cryptocurrency so it could watch suspected fraudsters use it – an idea that worked so well it produced arrests in three countries. News of the Feds' currency, an Ethereum-based instrument named NexFundAI, appeared in a Wednesday Department of Justice announcement that eighteen individuals have been …

  1. amanfromMars 1 Silver badge

    Hmmm? Well, it does, does it not?

    "Today's enforcement actions demonstrate, once more, that retail investors are being victimized by fraudulent activity by institutional actors in the markets for crypto assets," explained Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement. "With purported promoters and self-anointed market makers teaming up to target the investing public with false promises of profits in the crypto markets, investors should be mindful that the deck may be stacked against them.”

    Does that statement from Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement, identify and charge the FBI of promoting fraudulent activity?

    1. Clausewitz4.0 Bronze badge
      Devil

      Re: Hmmm? Well, it does, does it not?

      Who guarantee the FBI itself didn't cashed out a few millions?

      1. NoneSuch Silver badge
        Facepalm

        Re: Hmmm? Well, it does, does it not?

        Despite the downvotes on the previous post, did the FBI refund the investments to all the non-law breaking individuals or are they having a really nice office Christmas party this year? It's a valid question.

        1. Clausewitz4.0 Bronze badge
          Devil

          Re: Hmmm? Well, it does, does it not?

          "or are they having a really nice office Christmas party this year?" (FBI)

          Sometimes the silence is the best answer, after all...

  2. Pascal Monett Silver badge

    "coded in a way that prevented market manipulation"

    Oh really ? And how did you do that ?

    Because, apart from implementing rules that prevent customers from buying and/or selling x amount in t time, which somebody with average intelligence could circumvent using more than one account, I don't see that you're intelligent enough to prevent market manipulation.

    But those were just words anyway. PR fluff to impress the gullible.

    Which is the basic rule for anything crypto these days.

    1. katrinab Silver badge
      Meh

      Re: "coded in a way that prevented market manipulation"

      The amount of real money people hand over in exchange for the fake money isn't something the blockchain can control. The blockchain can control what happens when the "owner" of the coins decides to transfer it, but can't control what inducements (eg real money) would persuade the owner to initiate the transfer.

  3. Guy de Loimbard Silver badge

    Have I missed something here? When did Crypto become regulated?

    Maybe I've been half asleep and have missed the Crypto hype of being regulated.....

    Ah well, win some you lose some, at least for the Crypto investors.

    1. katrinab Silver badge
      Windows

      In 1933, following the Wall Street crash. It didn't specifically mention crypto, obviously, it hadn't been invented yet. But the problems they faced in 1929 were caused by the exact same frauds. The fact that it was done using morse code over telegraph lines rather than the much more sophisticated internet we have today doesn't really make any difference.

      It is more likely that you were not born yet rather than asleep.

      1. Guy de Loimbard Silver badge
        Pint

        Upvote for the comedic use of your icon and the content of the post.

        Very good.

        Have a pint! ===>

    2. Necrohamster Silver badge

      Well, the FBI isn't a financial regulator so there's your first clue.

      Cryptocurrency, like anything else, attracts the attention of law enforcement when it's used for fraudulent purposes.

      1. Guy de Loimbard Silver badge
        Pint

        Thank you!

        You have confirmed I have indeed been asleep during the Crypto thing quickening!

        Pint for you too @Necrohamster ===>

    3. Anonymous Coward
      Anonymous Coward

      It's regulated in various places to different degrees. In the US it depends on the State you're in. New York has crypto licenses now.

      If you're in the UK, then generally the FCA regulation generally applies, no need for new regulations...I think similar applies in Europe.

      It's only dumbass backwaters like the US that can't figure itself out because of the insane number of regulatory bodies they have...they have to spend years working out what something is, so they can assign it to the appropriate department to be regulated...but its even more complicated than that, because the departmental budgets are set based on workload so even if a department has nothing to do with it, they want it to increase their budgets which draws the process out even longer...fucking dumb.

      1. Anonymous Coward
        Anonymous Coward

        It's only dumbass backwaters like the US that can't figure itself out because of the insane number of regulatory bodies they have...

        You'll find similar numbers of regulatory bodies in any large developed economy or economic bloc. I know this because I work in the regulatory system.

        they have to spend years working out what something is, so they can assign it to the appropriate department to be regulated..

        That's how most models of democracy work, because the regulators are part of the administrative branch of government (that deliver the policies governments enact), and all the decisions need to be taken by the executive branch of government (politicians), and the policy mostly needs to be enacted by legislation. Those last two aspects require involving the legislature, and that's another unbelievably slow process.

        Change in government is slow. If you want a faster and more responsive government then you need to remove secretaries of state and their juniors from the legislature, have two or three times as many of them, and have them working full time on policy without the oversight or challenge of the legislature. Even then, stuff takes time - you want to change the law, that means impact assessments, business and public consultations, drafting a consultation, then reviewing each and every response, then drafting and review of new or changed policy, drafting, review, passing of new legislation. Because everything government does has to be done with the full authority of government, things do take many times longer than an equivalent decision in the private sector. And if it involves new regulatory responsibilities, work is needed to decide who is the regulator, how the regulations will be enforced, etc etc.

        It's very disappointing how poorly informed most people are about how democracy actually works.

        1. Wellyboot Silver badge

          All the oversight could be removed quickly and a single informed* person could set the rules simply by saying what's allowed, throw in a plain clothed state enforcement body under the control of the same individual, job done.

          That alternative to democracy tends to have 'other' bigger issues though...

          *to their preferred level of satisfaction

          1. Phil Koenig Bronze badge

            "A single informed person"

            Yes, dictators generally think that they are geniuses.

            1. Anonymous Coward
              Anonymous Coward

              Re: "A single informed person"

              or "stable geniuses"

              that for some reason decided to identify as an orange

          2. Not Yb Bronze badge

            There is no major regulatory system that would be simple enough for "one informed person" to make correct decisions in all cases. Reality is more complex than it looks.

            1. LybsterRoy Silver badge

              How about one subject matter specialist rather than a small horde of uninformable politicians?

        2. LybsterRoy Silver badge

          -- have two or three times as many of them --

          Is this based on the principle that more thickos are better?

          -- It's very disappointing how poorly informed most people are about how democracy actually works. --

          Fully agree but why is your post about bureaucracy?

      2. martinusher Silver badge

        I should remind you that our little 'dumbass backwater' is actually a union of 50 different countries, most physically larger than the UK and one at least economically larger. Many smaller countries in Europe are no match in both size and economy to somewhere like Los Angeles County.

        Trying to keep this lot more or less on the same page, much less in sync, is actually a Herculean effort. Even the EU is constantly whining about the difficulty of working with "29 countries".

      3. Dostoevsky Bronze badge

        Idiot.

        We deliberately do not have a fast-moving government. If the government were to suddenly become efficient, with a fixed direction and policy, we'd be toast.

        As it is, the government's response time is considerably longer than that of the press and public opinion. I pray it stays that way.

        1. LybsterRoy Silver badge

          Re: Idiot.

          What's the odds of "improving" the government's response time so that its longer than their term in office?

          1. Dostoevsky Bronze badge

            Re: Idiot.

            Term limits for Congress now!

    4. Anonymous Coward
      Anonymous Coward

      Not sure what the downvotes are for.... Love this place!

  4. Anonymous Coward
    Anonymous Coward

    “false promises of profits in the crypto markets”

    I’m more amazed there are still sufficient marks out there to power the crypto scam.

    1. hammarbtyp

      Re: “false promises of profits in the crypto markets”

      The universe and the gullible are the only infinite resources, and we aren't 100% sure about the universe

    2. spacecadet66 Bronze badge

      Re: “false promises of profits in the crypto markets”

      Satoshi Nakamoto (long since proven to be American comedian and provocateur Andy Kaufman) posted the first block of the Bitcoin chain on January 3, 2009. I haven't been able to find out what exact time, at least not within the confines of the amount of work I'm willing to put into this bit. So let's just round to the nearest day and call it 5,760 days even since then.

      There are 8,294,400 minutes in 5,760 days. Applying Barnum's Constant (one sucker born/minute), there are likewise 8,294,400 new suckers who came of age in that time. 8.3 million marks might not be a lot compared to the peak of blockchain frenzy, but it's still enough to support a sizeable ecosystem of grifters.

      1. Strahd Ivarius Silver badge
        Coat

        Re: “false promises of profits in the crypto markets”

        Satoshi Nakamoto (long since proven to be American comedian and provocateur Andy Kaufman)

        How much are you willing to bet it is instead a CIA operator?

        1. spacecadet66 Bronze badge

          Re: “false promises of profits in the crypto markets”

          If I had to pick an alphabet-soup agency behind Bitcoin, I might guess the IRS sooner than the CIA. "Please, do all your money laundering through this total non-honeypot."

          Seriously, though, applying Occam's Razor, I think it's most likely that Nakamoto was a single person acting for ideological (libertarian and/or cypherpunk) reasons, not part of an organized operation. But if you want to spread the story that he was actually Andy Kaufman, I would be very happy about that.

          1. Anonymous Coward
            Anonymous Coward

            Re: “false promises of profits in the crypto markets”

            This would be genius: IRS sets up a scam that people avoiding tax will use.

            Scammers are happy because they avoided the IRS.

            IRS is happy because it ends up with 40% of the money instead of the 20% they get from taxing honest citizens.

            Politicians are happy because they can blame CN or RU for stealing the crypto.

            All that is needed is a bunch of disapproving press releases from the IRS about RevenueCoin users cheating the taxpayer to kick start it

      2. John Smith 19 Gold badge
        Coat

        "long since proven to be American comedian and provocateur Andy Kaufman"

        Who died in 1983.

        Impressive.

        1. spacecadet66 Bronze badge

          Re: "long since proven to be American comedian and provocateur Andy Kaufman"

          Yeah, that's what Kaufman/Nakamoto wants you to believe.

    3. Kevin McMurtrie Silver badge

      Re: “false promises of profits in the crypto markets”

      The stock market is no different. People pay billions of dollars for stock in a company that is not only losing money, but doesn't yet have a plan for making money. It's a perceived supply and demand game.

      1. John Smith 19 Gold badge
        Coat

        "It's a perceived supply and demand game."

        No. It's a perceived value game.

        An actual cold hard look at a social media companies balance sheet asset value would not match it's share price. Factor in the access it gives to billions of users details to allow markeers to segment the market and you start to get a match.

        Crypto is claimed to be both anonymous and untraceable. In fact it leaves a money trail (what do people think that block chain is?) and anonymous only to the IP address. That's not particularly "anonymous" to state level actors hunting at least 10s of $m.

        In fact eCurrency was first trialled in the UK by (IIRC) Monza in the UK in 80's. It included the "eWallet" to carry value tokens to eliminate the involvement of a central bank. Today that would be an app on a phone.

        1. mooblie

          Re: "It's a perceived supply and demand game."

          IIRC that was called "Mondex".

  5. Robert Grant

    It's nice that scammers are being caught, but the trade volume thing is weaker than I thought this would be. The main message should be that using trade volumes is a bad signal, and you shouldn't use it, because it's so easy to fake. Not that you got scammed.

  6. Anonymous Coward
    Anonymous Coward

    Have I understood this correctly? A ponzi scheme was set up to catch people trying to manipulate other people into paying into ponzi schemes by faking the apparent value of buying into the ponzi scheme.

    Why not just acknowledge that most (if not all) crypto currencies are ponzi schemes and regulate them as such?

    1. Anonymous Coward
    2. Yet Another Anonymous coward Silver badge

      > most (if not all) crypto currencies are ponzi schemes and regulate them as such?

      Because then they would be indistinguishable from a bunch of other financial instruments and the SEC or USSS or one of a dozen existing financial regulators would get them and the FBI wouldn't get the power/funding/cool of being the crypto regulator

    3. doublelayer Silver badge

      Because "Ponzi scheme" is a more complicated concept than something weird related to money. There are lots of types of financial schemes that are not Ponzi schemes. There are a lot of dubious financial things that aren't fraud at all, just bad ideas for people who don't know what they're doing. There are things that people don't like, either because there are real ethical concerns or because those people don't understand them, which are not any of the above.

      Using a term with a specific meaning for things that aren't related to that does not help explain what the problem is, whether you want to explain it to educate someone about what they should do or you want to change the regulations to prevent it from happening at all. Computer crime and things that aren't illegal but should be computer crime won't be fixed if I insist on calling it arson. Financial crime and things that aren't but should be won't be fixed if I insist on calling it a Ponzi scheme.

    4. Anonymous Coward
      Anonymous Coward

      Or rather, was this the federal gov's attempt at crypto currency? Put it out there, and if/when people buy in, yes! It's working!!

      But the federal attempt at crypto currency went terribly badly, with rampant crime and etc? Or what?

      If it wasn't their attempt at crypto currency, it seems like the whole thing was set up to entrap people. What other use would there be for it? A defense of "entrapment" feels like a slam-dunk.

      1. Sherrie Ludwig

        If it wasn't their attempt at crypto currency, it seems like the whole thing was set up to entrap people. What other use would there be for it? A defense of "entrapment" feels like a slam-dunk.

        Cops set up an auto repair shop, and word on the street goes that this is a place that will buy cars and parts no questions asked. Thieves start using it. After a while, bam! Busted. No entrapment, if the thieves walked in without coercion.

        Numerous fugitives have been caught by the "Congratulations, you have won a TV! Pick it up this date at this warehouse!" scheme. Nobody forced them to come, they get nabbed anyway.

        Courts have ruled on this: not entrapment.

        Crypto seems to me to be a "greater fool" scheme writ large, nobody forces anybody to use it.

  7. Dimmer Silver badge

    There is a difference

    Between stock and crypto trading.

    In stock, it is legal to sell a stock if you don’t have it. With that, brokers can move the market. Game Stop is an example. Love how karma caught up to them.

    Crypto; Bitcoin and ETH as an example, you can’t just make it up. Want to trade? You have to own it. (Or the exchange that is)

    In the early days the stock guys saw a new opportunity. A new playground they could exploit.

    Here is one example how they got their a$$ handed to them:

    Broker would buy enough to move the market.( It’s the block chain so they were easy identified. ) Just like they would do in the market. (But that is hidden) They are setting up a pump and dump. They also would put in a sell order to kick in if it drops below a certain amount. (Again identifiable in crypto trades). A Whale would sell a bunch of that crypto causing the market to drop. But just enough for the brokers sell orders to kick in and that would cause a flash crash. Their crypto would be then bought by the Whales (or anyone along for the ride) that had very low buy orders in place.

    Whole thing take less than 10 min but the brokers loose millions. And this is because unlike the stock market where broker control the trading, anyone can do trades in crypto.

    Now for an example of how a government made a massive amount on crypto. Years ago China had the most Bitcoin miners. The government releases a statement that it is banning crypto. Price falls. They buy. They retract the statement and up it goes. They sell. Over a few years, they pulled this scam several times.

    1. amanfromMars 1 Silver badge

      Vive la différence ... but spot the flaw and deliberate mistake when economies are doing too well

      In stock, it is legal to sell a stock if you don’t have it. With that, brokers can move the market..... Dimmer

      Isn’t that weird and surely encouraging of all manner of right dodgy and criminal shenanigans? Ponzi and Pyramid Market Traders ‘r’ US? And such a market is as a fantasy trading platform building ever weaker and more fantastic dreams upon a crumbling foundation of shifting sand sinking deeper and deeper into the dark abyss of forlorn hopes and increasingly manic and psychotic despair ..... which even simple common sense would/should tell you is the only logical final bankrupt resting place destination for it and its players and brokerages.

      1. Not Yb Bronze badge
        Facepalm

        Neither of you understand the stock market, or basic economics.

        1. amanfromMars 1 Silver badge

          Is there more to understand about the stock market, or basic economics, other than ......

          .....it is a game one plays to win with serial losers that both pilfers and restores the credit needed for invigorating Imaginative Trades?

  8. cantankerous swineherd

    looks like entrapment. not necessarily a bad thing

    1. Grunchy Silver badge

      “Looks like entrapment”

      It looks more like a bait car.

      (Speaking of cars: I am surprised by the duration of the ongoing “crypto.com” sponsorship scam of Formula 1. I still enjoy watching the racing spectacle because of two rules: 1. Never pay any fee to anybody to watch F1 races, 2. Never transact any business with any company associated with F1 in any capacity.)

      1. druck Silver badge

        Re: “Looks like entrapment”

        There are many dodgy crypto firms sponsoring individual F1 teams.

        I just hope the teams get the real money upfront before the crypto bros pull the enviable exit scams.

      2. captain veg Silver badge

        Re: “Looks like entrapment”

        > Never transact any business with any company associated with F1 in any capacity.

        Do you include Durex in that category? They were "associated" with the Surtees F1 team in 1976. I expect that the "capacity" was quite elastic.

        -A.

  9. This post has been deleted by its author

  10. Anonymous Coward
    Anonymous Coward

    To all those commenting

    Pump and dump schemes are real and are used to manipulate stock prices of penny stocks all the time. People who fall prey to such schemes lose lot of money. There are like as many cryptos out there as Linux distros and pump and dump happens all the time. Don't get scammed by pump and dump schemes.

  11. sketharaman

    Since when has entrapment become legal?

    1. gnasher729 Silver badge

      It’s not entrapment if someone willing to do a crime anyway is caught. Like leaving a parked car with key in the ignition is not entrapment because an honest person wouldnt take it.

  12. Blackjack Silver badge

    Next time a Crypto Bro nags you, send them the link to this article.

  13. Whiznot

    The FBI was the market maker. How were transactions executed? What were the transaction costs?

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