CLS Global FZC LLC is a cryptocurrency market maker based in the UAE, claiming to support new project tokens by providing liquidity. From August 23 to September 18, 2024, CLS Global was accused of market manipulation involving the crypto asset “NexFundAI,” using wash trading to create fake trading volume and mislead investors into buying. The SEC classified “NexFundAI” as a security, and determined that CLS Global’s conduct 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, generating nearly $600,000 in fake volume, accounting for 98% of the total trading volume during the period. These trades were driven by algorithms and bots, aimed at creating a false appearance of market activity to lure retail investors. Ironically, the manipulation was carried out as a “market service” hired by the promoters of “NexFundAI.” CLS Global profited from this, while the project team and investors suffered losses.

1. Legal Action and Judgment

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 U.S. Attorney’s Office for the District of Massachusetts filed a criminal case against both individuals, charging them with market manipulation and wire fraud. This action was part of an FBI “sting” operation aimed at cracking down on misconduct in the crypto market.

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

• Pay Penalties: A civil fine of $425,000, disgorgement of $3,000 in ill-gotten gains, and $80.39 in prejudgment interest;
• Conduct Restrictions: Within 30 days, ensure clients are not U.S. persons or entities; implement compliance policies within 45 days; and submit annual compliance reports for the next three years;
• Penalty Offset: Any fines paid in the criminal case may be credited toward the civil penalty.

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

2. Market Maker Misconduct: From Loan Option Models to Wash Trading

CLS Global’s wash trading is just the tip of the iceberg when it comes to predatory behavior by market makers in the crypto space. The “Loan Option Model” scandal previously analyzed by Aiying shows similar patterns, exploiting the lack of market transparency and project teams’ inexperience.

• Predatory Practices in the Loan Option Model

In the crypto market, market makers offer liquidity to new projects using the “Loan Option Model.” The project team lends tokens to the market maker, who then buys and sells them on exchanges to maintain price stability. These contracts typically include option clauses allowing the market maker to either return or purchase the tokens at a predetermined price in the future. However, some unscrupulous market makers exploit this model by:

• Crashing the Price for Profit: Selling large volumes of borrowed tokens to push the price down, triggering panic selling among retail investors, then buying back at low prices to return tokens and pocket the difference;
• Option Abuse: Returning tokens at the price bottom by leveraging the option clause to maximize profits;
• Information Asymmetry: Project teams often don’t fully understand the risks of the agreement and end up signing opaque contracts, falling prey to market makers.

These practices can be devastating for small projects: token prices collapse, community trust is lost, exchanges may delist the token due to low trading volume, and the project’s fundraising and survival are threatened.

• CLS Global’s Wash Trading

The wash trading by CLS Global shows similarities to the predatory loan option practices — both rely on using the market maker role to fabricate market activity:

• Fake Volume: Through self-trading, CLS Global created the illusion that “NexFundAI” was highly active, attracting retail investors;
• Breach of Trust: When the fake boom collapses, investors suffer losses and the project’s reputation takes a hit;
• Regulatory Gaps: Wash trading takes advantage of the lack of real-time monitoring and transparency in crypto markets, just like the opaque contracts in the loan option model.

Additionally, other manipulative market maker tactics — such as “invisible knife” contracts, liquidity “kidnapping,” and fake “combo service” packages — are also widespread. These behaviors collectively lead to collapsing market caps, dissolved communities, and a serious erosion of trust in the crypto industry.

3. Lessons from Traditional Finance: A “Textbook” for the Crypto Market

Traditional financial markets have also faced similar issues with market manipulation, but through mature regulatory frameworks and transparency mechanisms, the harms of predatory behavior have been significantly reduced. The CLS Global case serves as a wake-up call for the crypto industry — learning from traditional finance is imperative.

• How Traditional Finance Responds
• Strict Regulation: The U.S. SEC’s Rule SHO restricts naked short selling by requiring shares to be locatable before a short sale; the “uptick rule” prevents malicious price suppression. Section 10b-5 of the Securities Exchange Act punishes market manipulation. The EU’s Market Abuse Regulation (MAR) serves a similar function.
• Information Transparency: Agreements between listed companies and market makers must be reported to regulators; trade data is publicly accessible; large trades must be disclosed, reducing room for hidden manipulation.
• Real-Time Monitoring: Exchanges use algorithms to monitor unusual price movements and trigger investigations. Circuit breakers suspend trading during extreme volatility to prevent panic.
• Industry Standards: FINRA sets ethical standards for market makers in the U.S. The NYSE’s Designated Market Makers (DMMs) must meet strict performance criteria.
• Investor Protection: Class action lawsuits and the Securities Investor Protection Corporation (SIPC) offer recourse and compensation for harmed investors.

These measures create a multi-layered defense system that effectively restricts market maker misconduct in traditional markets. For example, during the 2008 financial crisis, the SEC swiftly investigated malicious short selling of bank stocks, penalizing several institutions and tightening oversight.

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