CLS Global FZC LLC is a cryptocurrency market maker based in the UAE, claiming to support new project token transactions by providing liquidity. From August 23 to September 18, 2024, CLS Global was accused of market manipulation of "NexFundAI" crypto assets, creating false trading volume through wash trading, and inducing investors to buy. The SEC determined that "NexFundAI" was a security and its actions violated the anti-fraud and market manipulation provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

According to the SEC investigation, CLS Global used 30 wallets to conduct 740 wash trades, creating nearly $600,000 in fake trading volume, accounting for 98% of the total trading volume during the same period. These transactions were driven by algorithms and robots, aiming to create the illusion of market activity and attract retail investors. Even more ironic is that this manipulation was a "market service" hired by the promoters of "NexFundAI", from which CLS Global made a profit, while the project owners and investors suffered losses.

I. Legal Actions and Judgments

On October 9, 2024, the SEC filed a civil lawsuit against CLS Global and its employee Andrey Zhorzhes (Case No. 1:24-cv-12590-AK). At the same time, the Massachusetts District Attorney's Office filed a criminal lawsuit against the two, alleging market manipulation and wire fraud. This action is part of the Federal Bureau of Investigation (FBI)'s "phishing" operation aimed at combating chaos in the crypto market.

On April 7, 2025, the civil case reached a final judgment, and CLS Global was required to:

  • Paid penalties: $425,000 in civil penalties, $3,000 in disgorgement, and $80.39 in prejudgment interest;
  • Behavior restrictions: Ensure that the customer is not a US individual or entity within 30 days, implement compliance policies within 45 days, and submit compliance reports every year for the next three years;
  • Fine Offset: If a fine is paid in a criminal proceeding, it can be offset against a civil fine.

Andrey Zhorzhes' civil penalty has not yet been determined and may still be processed in criminal proceedings, adding uncertainty to the case. The CLS Global case is one of the SEC's signature enforcement actions against crypto market manipulation in recent years.

2. Market Maker Chaos: From Loan Option Model to Wash Trading

CLS Global’s wash trading is just the tip of the iceberg of predatory behavior by crypto market makers. The chaos of the “Loan Option Model” analyzed in Aiying’s previous article is similar to this case, both of which took advantage of the market’s opacity and the lack of experience of the project party.

Predatory Operations of Loan Option Models

In the crypto market, market makers provide liquidity to new projects through the "loan option model". Projects lend tokens to market makers, who buy and sell on exchanges to stabilize prices. Contracts usually contain option clauses that allow market makers to return or purchase tokens at a specific price in the future. However, some bad market makers abuse this model:

  • Selling a large amount of borrowed tokens to drive down the price, triggering panic selling by retail investors, and then buying them back at a low price to make a profit;
  • Option manipulation: using option terms to return tokens at the bottom of the price to maximize their own profits;
  • Information asymmetry: Project parties lack understanding of contract risks, sign opaque agreements, and become the “prey” of market makers.

These actions are devastating for small projects: token prices plummet, community trust collapses, exchanges may delist them due to insufficient trading volume, and project financing and survival are in trouble.

Wash Trading at CLS Global

CLS Global’s wash trading is similar to the predatory behavior of the loan option model. The core of both is to use the role of market makers to create market illusions:

  • Fake trading volume: By buying and selling on its own, CLS Global made "NexFundAI" appear to be actively trading to attract retail investors;
  • Trust destruction: After the false prosperity collapses, investors suffer losses and the project’s reputation is damaged;
  • Regulatory loopholes: Wash trading exploits the lack of real-time monitoring and transparency in crypto markets, much like the opaque contracts of the loan option model.

In addition, other market maker routines mentioned in the article, such as "invisible knife" contracts, liquidity "kidnapping", fake "family bucket" services, etc., are also common in the industry. These behaviors have jointly led to the evaporation of the market value of small projects and the dissolution of the community, seriously eroding the trust of the industry.

3. Experience of Traditional Finance: The “Textbook” of Crypto Market

Traditional financial markets have also faced similar market manipulation issues, but through mature supervision and transparent mechanisms, the harm of predatory behavior has been significantly reduced. The CLS Global case has sounded the alarm for the crypto industry, and it is imperative to learn from the experience of traditional finance.

Traditional finance’s response

Strict supervision: The US SEC's "Rule SHO" restricts naked short selling and requires that stocks be borrowed before short selling; the "upward price rule" prevents malicious price suppression. Section 10b-5 of the Securities Exchange Act severely punishes market manipulation, and the EU's "Market Abuse Regulation" (MAR) has a similar effect.

Information transparency: Agreements between listed companies and market makers must be reported to regulatory authorities, transaction data must be publicly available, and large transactions must be reported, reducing the space for opaque operations.

Real-time monitoring: Exchanges use algorithms to monitor abnormal fluctuations and trigger investigations; circuit breakers suspend trading when prices fluctuate drastically to prevent panic from spreading.

Industry regulations: The U.S. Financial Industry Regulatory Authority (FINRA) sets ethical standards for market makers, and the NYSE’s designated market makers (DMMs) must meet strict requirements.

Investor protection: Class action lawsuits and the Securities Investor Protection Corporation (SIPC) provide investors with channels for accountability and compensation.

These measures form a multi-layered protection network, which effectively constrains the behavior of market makers in traditional markets. For example, during the 2008 financial crisis, malicious short selling of bank stocks was quickly investigated by the SEC, and many institutions were fined and required to improve supervision.