CLS Global FZC LLC and Andrey Zhorzhes

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26154 / October 15, 2024

Securities and Exchange Commission v. CLS Global FZC LLC and Andrey Zhorzhes, No. 1:24-cv-12590-AK (D. Mass. filed Oct. 9, 2024)

SEC Charges So-Called Market Maker and Its Employee in Crackdown on Manipulation of Crypto Assets Offered and Sold as Securities

The Securities and Exchange Commission announced fraud charges against United Arab Emirates entity CLS Global FZC LLC, a self-proclaimed crypto asset market maker, and its employee Andrey Zhorzhes for engaging in a scheme to manipulate the market for “NexFundAI,” a crypto asset being offered and sold as a security to retail investors. As alleged, the scheme was intended to induce investor victims to purchase NexFundAI by creating the false appearance of an active trading market for it.

According to the SEC’s complaint, the alleged promoters of NexFundAI, a crypto asset created at the direction of the Federal Bureau of Investigation as part of its parallel investigation into potential market manipulation in the crypto asset industry, hired so-called market maker CLS Global to provide market-manipulation-as-a-service, which included generating artificial trading volume for the NexFundAI crypto asset that the alleged promoters offered and sold as a security to retail investors in unregistered transactions. The SEC alleges that CLS Global and Zhorzhes manipulated the market on behalf of the alleged promoters by trading NexFundAI in a manner that served no economic purpose, and that they used an algorithm (or bot) that generated artificial trading volume.

The SEC’s complaint, filed in the United States District Court for the District of Massachusetts, charges CLS Global and Zhorzhes with violating Sections 17(a)(1) and (3) of the Securities Act of 1933, and Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. The complaint seeks permanent injunctions, conduct-based injunctions, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties.

The SEC appreciates the assistance of the FBI and the United States Attorney’s Office for the District of Massachusetts, which has announced a parallel criminal action.

The SEC’s investigation was conducted by David D’Addio, Amy Harman Burkart, Ivan Panchenko, Jeffrey Cook, and John McCann in the SEC’s Boston Regional Office, as well as Colin Missett and Joy Guo of the Crypto Asset and Cyber Unit (CACU). They were supervised by Amy Gwiazda, Michael Brennan, Donald Battle, and Jorge Tenreiro of CACU and by Celia Moore and John T. Dugan of the Boston Regional Office. The team also thanks the staff of the SEC’s Office of Strategic Hub for Innovation and Financial Technology for their assistance. The litigation will be led by Mr. D’Addio and Ms. Burkart.